Daily FX Wrap
USD remains on the back foot as politics continue to weigh – Trump saga rolls on, US Dollar Index looking very heavy. GBP/USD jitters resurfacing, but cable refusing to give up on resistance levels above. Healthy EU data run tomorrow.
We can focus more on the economic factors contributing to exchange-rate performance – which comes as a welcome relief in the current climate – with a host of EU zone numbers out Tuesday morning. Manufacturing and services PMIs from France and Germany are followed up by the EU composite. Starting off the European session we also have the Q1 GDP out of Germany, with their IFO survey at the end of the amalgam of data on offer.
What the market will be looking for here is confirmation that the ECB’s assumptions of an improving economic outlook are justified, and the stats so far have clearly been positive. This has been underlined by strong PMIs from the periphery as well as the core, so avoiding any material weakness is all that will be required to maintain expectations than the governing council will communicate QE tapering later this year.
EUR/USD calls for 1.1400-1.1500 have been growing as fast as those for parity have been receding, but having covered some notable ground in the past few weeks, overextended levels on the short term frame are now being called into question. That said, we are not expecting any major pullbacks, less so in the current market make-up. 1.1150-1.1090 looks to be an area heavy with fresh demand.
This is mirrored with a EUR/GBP rate pushing steadily higher. Resistance above 0.8600 has now been removed to suggest an initial move on 0.8700-25, with some of this move down to GBP weakness creeping in as the Brexit related headlines are getting frosty again. Over the weekend, David Davis said the UK will walk away from talks if the exit payment is too high, and as noted first thing, the estimates have grown from Eur60bln at the start of the year to Eur100mln.
General election risk will also have some negative impact on the pound, with the polls showing a modest narrowing in the gap between Tories and Labour. The perception is that a narrower lead eats away at a victory, which gives Theresa May a stronger mandate at the negotiating table, but the to-and-fro between the UK and EU is not encouraging as it stands anyway.
On the immediate horizon, we have the April PSNB Tuesday morning, with the CBI Distributive Trades Survey later on, but BoE governor Carney’s inflation report hearing in front of the TSC may provide some sparks for GBP traders. Steady weakness seen through the early part of the week, vs the EUR and commodity currencies, but cable looks reluctant to move away from the 1.3000 level, largely due to broad based USD softness.
Swedish unemployment also due out in the morning, with a rise expected from the Mar 6.8% read to 7.1%. This is unlikely to spark any major price action, but it is worth noting the USD/SEK rate hovering over some key support levels on the weekly chart – once again predominantly from the USD perspective.
In the US, Markit manufacturing and services PMIs due out in the afternoon, but this gets limited attention compared to the ISM survey next week. New homes sales data may get a little more focus, but in the grand scheme of things, the market is looking to the top-tier data to gauge the rate path past June. However, USD performance is all about politics at the moment, and we can see how much optimism was built in from the fiscal stimulus measures pledged by the Trump administration. Further USD weakness on the cards as a result, with the USD index looking very heavy.
Wholesale sales in Canada also due tomorrow, but USD/CAD fortunes all banking on the OPEC meeting this week and whether an agreed extension can see oil price building on recent gains. WTI has made good progress above USD50.00, but Monday’s session saw notable reluctance to push USD/CAD too aggressively below 1.3500. It has been a struggle all the way back down from the near 1.3800 highs, and this in spite of record positioning against the Loonie.
We have the BoC on Wednesday, so there may be an element of sitting it out on the side lines for now. AUD gains today have been sluggish despite the pick up in the underlying commodities – Copper tipping USD2.59 but AUD struggling to get close to 0.7500. We only have to look to the pressure seen on AUD/NZD to see why, and this is down to the optimistic outlook touted in this week’s NZ budget announcement (Thursday). NZD/USD is still pushing for 0.7000 as a result.