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·       The dollar nursed losses against major currencies on Tuesday after encouraging results from the trial of a vaccine for COVID-19 improved sentiment in a boost to riskier assets.

The euro held onto hefty gains against the Swiss franc and the dollar following a proposal by France and Germany for a 500 billion euro ($543 billion) recovery fund offering grants to regions hit hardest by the coronavirus crisis.

Currencies linked to commodities and other riskier assets were broadly supported, helped also by a sharp rebound in oil prices as investors’ focus turned to recovery from the pandemic.

“There has been a big improvement in risk sentiment because of hopes for a vaccine,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

“Volatility is falling for stocks and dollar-funding costs are lower. It’s easy for the dollar to fall and for other currencies to ride the dollar’s losses higher.”

 

·       The euro EUR=EBS bought $1.0913 on Tuesday, having gained 0.9% against the greenback in the previous session.

The euro’s rally overnight came after France and Germany proposed that the European Commission borrow money on behalf of the whole EU for the recovery fund. The news also sent Italian government bond yields skidding to their lowest in more than a month.

The proposed fund is mostly expected to benefit Italy and Spain, whose economies have been hit hard by the coronavirus pandemic but have weak public finances.

The pound GBP=D3 also benefited from the dollar's losses and rose to $1.2204, but traders are bracing for the release of British jobs data later on Tuesday.

The dollar JPY=EBS was little changed at 107.39 yen.

In the onshore market, the yuan CNY=CFXS was steady at 7.1090 per dollar. Investors in the pair remain wary due to simmering tension between the United States and China over trade policy and criticism of China's early response to the coronavirus.

The yuan is likely to trade narrowly ahead of China’s annual parliament meeting due to start on Friday, where the government is expected to unveil economic targets and stimulus plans.

 

·       U.S. government debt prices were higher Tuesday morning, coming off a surge during the previous session following news of promising early testing of an experimental coronavirus vaccine.

At around 2:10 a.m. ET, the yield on the benchmark 10-year Treasury note was down at 0.7094% and the yield on the 30-year Treasury bond slipped to 1.4273%. Yields move inversely to prices.

 

·       EUR/USD short-term technical outlook

The EUR/USD is trading at its highest in almost two weeks, holding on to its bullish potential in the short-term. The 4-hour chart shows that it has accelerated north through all of its moving averages, which remain directionless. Anyway, the sharp buying volume skews the risk to the upside. In the mentioned chart, technical indicators head firmly higher well into positive ground, nearing overbought levels. As long as buyers defend the downside around 1.0890, the pair has chances of nearing the 1.1000 critical threshold.

Support levels:  1.0890 1.0860 1.0820

Resistance levels: 1.0920 1.0950 1.0985

 

·       Powell, Mnuchin to face Senate grilling on U.S. coronavirus response

The U.S. government’s handling of its massive economic response to the coronavirus pandemic will come under scrutiny on Tuesday as Treasury Secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell testify before the Senate Banking Committee.

Senators are expected to grill Mnuchin and Powell about actions still needed to keep the world's largest economy afloat and about missteps in rolling out some $3 trillion in aid so far.

 

·       Powell's testimony: Committed to using our full range of tools to support economy in this challenging time

The US Federal Reserve (Fed) already released the text of the Chairman Jerome Powell’s testimony 18 hours earlier than scheduled time, with the key highlights found below.

“The precipitous drop in economic activity has caused a level of pain that is hard to capture in words, as lives are upended amid great uncertainty about the future.”

“In addition to the economic disruptions, the virus has created tremendous strains in some essential financial markets and impaired the flow of credit in the economy.”

“The Federal Reserve's response to this extraordinary period has been guided by our mandate to promote maximum employment and stable prices for the American people, along with our responsibilities to promote stability of the financial system.“

“We are committed to using our full range of tools to support the economy in this challenging time even as we recognize that these actions are only a part of a broader public-sector response.”

Market reaction

On the release of the prepared text, the US dollar refreshed session lows against its main rivals at 99.59, having extended its downside consolidative mode after the slump from 100.40 levels.

At the time of writing, the US dollar index trades flat at 99.67, attempting a tepid bounce from the Asian session lows/ multi-day of 99.55.

 

·       Risk managers expect a prolonged global recession as a result of the coronavirus pandemic, a report by the World Economic Forum showed on Tuesday.

Two-thirds of the 347 respondents to the survey - carried out in response to the outbreak - put a lengthy contraction in the global economy top of their list of concerns for the next 18 months.

 

·       President Donald Trump threatened to permanently cut off U.S. funding of the World Health Organization, in a letter dated Monday that he shared on Twitter.

 

·       A White House advisory panel on Tuesday will call for the government and private industry to work together to build new technological infrastructure to support future jobs and provide the underpinnings critical to a solid economic recovery from the coronavirus pandemic, an official briefed on the plans said.

The White House American Workforce Policy Advisory Board, which is co-chaired by White House adviser Ivanka Trump and U.S. Commerce Secretary Wilbur Ross, and includes Apple (AAPL.O) Chief Executive Tim Cook, Lockheed Martin (LMT.N) Chief Executive Marillyn Hewson and IBM (IBM.N) Executive Chairman Ginni Rometty, plans to call for “an unprecedented investment in digital infrastructure.”

 

·       The United States will announce on Tuesday that it has signed a $354 million contract with a company to make generic medicines and pharmaceutical ingredients in the country needed to treat COVID-19, the New York Times reported late on Monday.

The move is part of efforts to bring pharmaceutical manufacturing to the United States from abroad. Phlow Corp is a generic drug maker based in Virginia which makes medicines overseas, mostly in India and China, according nyti.ms/36dylna to the NYT.

Trump’s trade adviser Peter Navarro, in an interview to NYT, called this “a historic turning point in America’s efforts to onshore its pharmaceutical production and supply chains”.

 

·       New car registrations in Europe fall 76% in April as coronavirus lockdowns hit sales

European car sales fell dramatically in April as coronavirus lockdowns in the region closed car dealerships and brought a halt to manufacturing and sales, the latest industry data showed Tuesday.

New car registrations in the EU fell 76.3% in April, from the same month a year ago, according to data from the European Automobile Manufacturers Association (ACEA).

 

·       The U.K. could roll out 30 million doses of a Covid-19 vaccine as early as September, according to the British government.

In an announcement on Sunday, the government said the U.K. would be the first country to be given access to a vaccine being developed at Oxford University, should it prove successful in clinical trials.

 

·       Oil prices mixed as Brent retreats on profit-taking after rally

Oil prices were mixed on Tuesday, with Brent pulling back from an early gain on profit-taking, while U.S. crude extended its rally amid signs that producers are cutting output as promised just as demand picks up on a resumption of economic activity.

Brent crude fell 19 cents, or 0.6%, to $34.62 a barrel by 0351 GMT, after earlier touching its highest since April 9.

U.S. West Texas Intermediate crude was up 11 cents, or 0.4%, at $31.93 a barrel, giving up some of its earlier gains. It rose as high as $33.44 earlier in the session, hitting its highest since March 16.

The June WTI contract expires on Tuesday, but there was little sign of a repeat of the historic plunge below zero seen a month ago on the eve of the May contract’s expiry amid signs that demand for crude and derived fuels is recovering from its nadir.

 

·       Oil Price Forecast: Short-term rising channel keep WTI buyers hopeful above $32.00

 

Reference: CNBC, Reuters, Worldometers, FX Street