Trump’s Wall Street gains erased as risks of a depression rise

Market volatility as measured by the CBOE volatility index rose by more than 4% in overnight trading. This was also evidenced in the American session as the Dow, Nasdaq, and S&P500 dropped by more than 6%. The three indices have nearly wiped out gains made during the Trump presidency. The same happened in the energy sector, where the price of crude oil slumped to a 17-year low. The bond market was also volatile. After rallying early yesterday, US treasuries sold off sharply while the yield on European government debt rose to the highest level in weeks. Most market participants are worried about an impending recession. Others, like Mohammed El-Erian are warning of a potential depression in the coming months as most developed economies shut down.

The price of crude oil declined to a 17-year low as participants worried about oversupply and low demand. West Texas Intermediate (WTI) declined by 17% to a low of $22 while Brent declined by about 10%. This happened as Saudi Arabia energy ministry said that the country will pump a record 12.3 million barrels per day in the coming months. The country hopes to force most US shale producers into bankruptcy. To some extent, the country is succeeding on this. Chesapeake Energy, one of the biggest shale producers has hired advisors as it tries to restructure its debt. Other companies too will likely follow suit as they make losses on every barrel they produce.

The Swiss franc has weakened slightly against the USD in the past few days. This decline has happened at a time when risks in the market have increased. Today, we will receive a monetary statement from the Swiss National Bank. The bank, which slashed interest rates by 25% yesterday, is expected to leave rates unchanged. It will also likely offer more monetary stimulus to support the economy. The bank, which holds vast positions in equities, has suffered as the global equity market has moved into the bear territory. In addition to the SNB, we will receive interest rates decision from the Turkish and South African central banks. We will also receive jobless claims from the US.

EUR/USD

The EUR/USD pair was little changed after the ECB announced a €750 billion Pandemic Emergency Purchase Program (PEPP). The purchases will be done until the end of the year. The pair is trading at 1.0900, which is slightly above the weekly low of 1.0800. The pair is below the short and medium-term exponential moving averages on the four-hour chart. Also, its volatility as measured by the average true range and Bollinger Bands has increased. As such, the pair may see some big swings today as attention remains on the coronavirus pandemic.

USD/CHF

The USD/CHF pair rose to an intraday high of 0.9750, which is the highest it has been since March 3. The pair, which saw a big decline at the end of March has managed to make a V-shaped recovery as traders rush to the US dollar. The price is above the 14-day and 28-day exponential moving averages while the RSI has remained slightly below the overbought level of 70. The momentum indicator too has been rising. The pair may continue rising ahead of the SNB decision.

USD/JPY

As with the previous pair, the USD/JPY pair has been rising as traders move to the USD. The pair has risen from 101.45 to a high of 109.50. The price is above the short and medium-term moving averages while the RSI has been on an upward trend. The momentum indicator too has been rising. The pair may continue rising today as traders move to the USD. This could see it move above 110.