Yen Slumps in Month-End, Beware of Gap Misinterpretations

Month-end added another dose of volatility to the FX market.  In early Friday, JPY is leading across the board as futures drop after worrying earnings statements from Amazon, The week wraps up with the April ISM manufacturing report (more below). This week's Premium Video (below) examines the widespread question on whether today's selloff in indices marks the start of the return to the March lows, or whether it's a pause before further ascent. Be careful. Tuesday's DAX long hit its final target of 11230, which is the high on the cash, but 100 pts below the high in futures/CFDs. The March 8 gap down was not filled, but Ashraf warns against getting hasty in the Premium video below.  

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The yen is leading today but was sold heavily into month end as the market continued to contemplate the economic data picture. US data showed a 7.5% drop in March personal spending, much worse than the 5.0% decline expected. Initial jobless claims were moderately worse than expected at nearly 4 million, taking the US total above 30 million.

That comes on the heels of a miss in GDP on Wednesday and Fed commentary that warned that Q2 may be the worst quarter on record. The equity market acknowledged the risk and the S&P 500 fell back below the 61.8% retracement of the March rout.

On the month, the Australian dollar was easily the top performing major while the euro lagged. The theme right now is undoubtedly the incredible amount of stimulus from central banks and governments. The thinking is that taxpayers will bear the losses from the virus rather than investors.

The big question now is the duration of the slowdown. Economies are going to open in May and we don't know how the consumer will respond. The Chinese experience shows some trepidation and that was in a seemingly-safer environment, at least in the vast majority of the country.

In the day ahead we will get another reading how bad the situation is for factories. The Chicago PMI on Thursday was at 35.4 compared to 47.8 in March and the 37.7 consensus. On Friday, the ISM manufacturing report is forecast to fall to 36.0 from 49.1. Traders will watch the New Orders and Prices Paid components for the internals of the report. But bear in mind that the services print of the ISM remains above at 50 (50.2), highlighting the strength of tech and internet industry during the Covid-19 era.