Wider risk appetite deteriorated very sharply as global coronavirus fears intensified once again with a mini flash crash in currencies during Asian trading.

US employment data was stronger than expected which provided short-lived dollar relief as wider fears dominated and volatility increased sharply.

Oil prices declined sharply on Friday as OPEC co-operation collapsed with further dramatic losses of close to 30% at Monday’s Asian open as Saudi Arabia boosted output and global benchmarks hit 4-year lows. Wider risk appetite deteriorated very sharply as global coronavirus fears intensified once again with a mini flash crash in currencies during Asian trading.

The major slide in oil prices hurt the Canadian dollar with heavy losses and the Norwegian krone weakened very sharply to record lows. There was fresh demand for defensive currencies as USD/JPY hit 4-year lows below 102.00.

The US dollar also came under renewed pressure as US yields slumped to fresh record lows with EUR/USD at 13-month highs around 1.1400. Sterling held steady with GBP/USD above 1.3100.

The dollar continued to decline sharply ahead of Friday’s New York open as US yields continued to move rapidly lower. US non-farm payrolls increased 273,000 for February, well above consensus forecasts of 175,000 and the January figure was also revised higher to 273,000 from 225,000 with a second successive solid increase in construction jobs. Unemployment declined to 3.5% from 3.6% with a 3.0% annual increase in wages. The dollar did gain some relief following the data, although the impact was limited as markets were still focussed on coronavirus fears with volatile trading.

EUR/USD dipped lower in late trading with a move below 1.1300 on dollar short covering after earlier 8-month highs just above 1.1350. Overall, the US still registered its worst week since May 2016 with a slide of more than 2%.

CFTC data recorded a notable decline in short, speculative Euro positions for the week and there will have been a further decline since the data was compiled, but overall positioning will still tend to erode dollar support.

Over the weekend, oil prices collapsed to 4-year lows following the breakdown in OPEC production curbs and start of a price war.

The slide triggered further major turbulence with commodity currencies under heavy pressure and wider risk aversion. The Euro gained fresh support at the Asian open despite a surge in fear surrounding the situation in Italy as quarantine rules were tightened. A wider stampede into defensive assets underpinned the single currency with the dollar under pressure at 16-month lows amid increased speculation that the Federal Reserve would have to sanction a further emergency rate cut.

US equity futures remained under sustained pressure ahead of the New York open with the S&P 500 index declining over 2.5% while the 10-year bond yield declined to below 0.75%. The dollar remained under pressure with a slide to 105.00.

There was speculation that the Bank of Japan would intervene to block further yen gains which triggered an element of caution, but the dollar struggled to make significant headway. As equities pared losses, USD/JPY settled around 105.35. CFTC data continued to record a net short yen position of over 40,000 contracts, maintaining the potential for short covering

Risk appetite declined very sharply again over the weekend with USD/JPY opening below 104.50. As oil prices crashed to below $30 p/b, there was a fresh increase in fear and rapid decline in equities as the Nikkei 225 index declined to 14-month lows below 20,000.

A downward revision to Japanese GDP triggered recession fears, but risk aversion dominated.

The yen surged as fear dominated and USD/JPY slumped to 3-year lows below 102.00 before a very tentative recovery on potential intervention as Japanese Finance Minister Aso warned against yen strength.

Sterling maintained a firm tone during Friday, primarily due to underlying US dollar weakness and GBP/USD broke above the 1.3000 level for the first time in over a week. With the Bank of England holding off from an immediate cut in interest rates, overall yield spreads underpinned Sterling demand. A government spokesman stated that this week’s budget would set out considerable investment which helped underpin the currency, although global events tended to dominate as volatility increased sharply.

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