Forex Major Currencies Outlook (Mar 29 – Apr 2)

USD 

Existing home sales and new home sales missed expectations and fell sharply from January reading coming in at 6.22 million and 775k respectively. Cold weather in Mid-West can be blamed as the main culprit for the decline in housing. It is still left to see if this is the one-off drop or a beginning of the trend as lumber prices are rising leaving less profit for investors. Final Q4 GDP reading was revised higher to 4.3% from 4.1% as reported by the second reading. February headline PCE rose to 1.6% y/y from 1.5% y/y in January while core PCE slipped to 1.4% y/y from 1.5% y/y the previous month. Inflation will start to rise next month when base effect takes center stage coupled with stimulus checks which will increase incomes and should push spending growth to almost double digits. 

This week we will have ISM manufacturing PMI and NFP data. Headline number is projected between 410 and 620k while the unemployment rate should drop toward 6%. 

Important news for USD: 

Thursday:

• ISM Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate 

EUR 

Preliminary March PMI data surprised to the upside with manufacturing coming in at 62.4, services at 48.8 and composite at 52.5. Manufacturing was propped by amazing reading of 66.6 from Germany, more than a 3-year high, achieved on the back of rising output, new orders and new export orders. Supply chain constraints also contributed to the rise through prices paid and supply deliveries categories which will prompt producers to transfer those costs to consumers thus leading to a rise in inflation. Services are still affected by the ongoing lockdowns but are faring much better than analysts expected. The reading is highest since August of last year and is moving closer to the 50-expansion level. 

Germany has announced an extension to lockdown until April 18. Q1 GDP is expected to be negative due to harsh lockdown measures and now with extension of it until mid-April there are growing concerns that Q2 GDP can also be negative. Potential for recovery is from H2 but with slow progress on vaccination it is highly questionable from this stand point. If the manufacturing sector keeps up producing at the current rate it can act as a savior and prevent a drop in Q2 GDP. 

This week we will have preliminary March inflation data. Due to the base effect, comparing the reading with the pandemic influenced reading from March 2020, we can expect a significant jump in inflation. 

Important news for EUR: 

Wednesday:

• CPI 

GBP 

Employment report for February showed that claimant count jumped to 86.5k from -20.8k the previous month and pushed the claimant count rate to 7.5% from 7.2%. The unemployment rate for January ticked down to 5% while employment change in the three-month period dropped -147k. This is a very mixed report which is heavily impacted by the underlying furlough scheme. Inflation reading showed a slowdown and came in much weaker than expected with headline CPI reading 0.4% y/y and core CPI 0.9% y/y. Discounts on clothing were the main contributor of weaker reading. After the inflation reading, chances of BOE hiking rates any time soon have dropped. 

Preliminary March PMI data showed big improvements. Manufacturing rose to 57.9 from 55.1, while services jumped to 56.8 from 49.5 in February. Even the gradual lifting of restrictions had a huge positive impact on the services reading. Composite was propelled to 56.6 from 49.6 the previous month. Supply deliveries still play a big role in the readings due to supply chains being impaired, but still the readings show that demand for UK services and manufacturing goods is present both domestically and abroad. 

AUD 

China will introduce the anti-dumping tariffs on March 28 and will go on for five years. Imports of Australian wine will be hit by duties of between 116.2% and 218.4%. This will have a negative impact on already weak relationships between China and Australia. PBOC has announced that potential growth for China in the next five years should be between 5 and 5.7%. 

This week we will have official PMI data from China. 

Important news for AUD: 

Wednesday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• Composite PMI (China) 

NZD 

The New Zealand government announced a set of new measures to fight the rise in housing prices that is occurring to the low rates policy. Housing prices has been added to the central bank's mandate. The government removed a tax incentive that encouraged speculation and will make more land available to boost supply. Assistance will continue to be provided for first-time buyers and low-income households. The announcement led to the huge drop in NZDUSD and the pair has not managed to recover during the week finishing it down 150+ pips. 

CAD 

BOC announced that they would start unwinding its emergency liquidity measures. The short-term financing facility will end in May, while the commercial paper and the provincial and corporate bond programs will expire shortly and not be renewed. 

JPY 

Preliminary March PMI data showed a minor improvement across the measures. Manufacturing rose to 52 in February, which is the highest reading in over 18 months, while services ticked up to 46.5 from 46.3 the previous month which pushed composite to 48.3 from 48.2 in February. The reading shows a growing divide between the manufacturing and services sectors caused by the state of emergency. March inflation for the Tokyo area continued to improve but at the snail pace. Headline CPI came in at -0.2% y/y vs -0.3% y/y in February and ex fresh food came in at -0.1% y/y vs -0.3% y/y the previous month. Ex fresh food and energy component is the only positive reading with 0.3% y/y, up from 0.2% y/y in February. 

CHF 

SNB has left the policy rate unchanged at -0.75% as was widely expected. Swissy is highly valued according to their assessment and they remain willing to act in the FOREX market if necessary. Inflation expectations have risen to 0.2% in 2021 and 0.4% in 2022 vs flat in 2021 and 0.2% in 2022 as previously expected. GDP should be in the range of 2.5-3% for 2021 while the pick-up in activity to pre-pandemic levels is expected in H2 of 2021. Total sight deposits for the week ending March 19 came in at CHF702.9bn vs CHF702.8bn the previous week. This is a negligent change as markets are pushing Swissy down on their own with EURCHF hovering above the 1.10 level.

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_{Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.}