Forex Major Currencies Outlook (Apr 4 – Apr 8)

USD 

President Biden announced that SPR will be tapped for the amount of 1 million barrels per day. The program should last for 6 months, which means 180 million barrels in total. This move will decrease oil prices in the short run, however, it will not resolve the bigger structural issues concerning supply and demand. It seems more as a political move to gain favour for the mid-term elections. 

We had yet another strong employment report. Headline number came in at 431k while previous month’s reading was revised up almost 80k to 750k. The unemployment rate dropped to 3.6% with participation rate ticking to 62.4% and moving in the right direction. Wages have continued to improve and add additional shine to the bright report. Hourly earnings rose 0.4% m/m and 5.6% y/y. Another strong report will nudge Fed toward 50bp rate hike in May. 

The yield on 10y T-note went as high as 2.55% and then proceeded to fall for the rest of the week while the 2-10s curve inverted on Thursday for a short period before going back to positive spread. Inversion of 2-10s yield curve is considered to be the harbinger of recession in 6-12 months time. Important caveat is that inversion occurred when 10y was falling below the 2y indicating that 2.5% yield could be the top at the moment. FedWatchTool sees probability of a 50bp rate hike in May at 76.6%. 

This week we will have ISM Non-Manufacturing PMI as well as the FOMC Minutes from the March meeting. 

Important news for USD: 

Tuesday:

• ISM Non-Manufacturing PMI

Wednesday:

• FOMC Minutes 

EUR 

Sentiment data from the EU showed decline induced by the Russia – Ukraine conflict. Economic sentiment dropped to 108.5 from 114, industrial sentiment to 10.4 from 14 while consumer confidence plunged to -18.7 from -8.8 the previous month. Only positive was services sentiment that rose to 14.4 from 13 in February on the back of recent reopening. 

Preliminary inflation data for March shows scorching hot inflation. Spain reported CPI rise of 9.8% y/y, Italy of 6.7% y/y vs 5.7% y/y in the previous month while Germany reported CPI at 7.3% y/y vs 5.1% y/y in February and astonishing 2.5% m/m increase in prices. German inflation should continue going higher in the coming months and a double digit inflation cannot be ruled out. France reported a 4.5% y/y increase in prices, from 3.6% y/y the previous month. For the Eurozone the reading came in at 7.5% y/y vs 6.6% y/y as expected and up from 5.9% in February and 2.5% m/m, same as German reading. Energy and food prices were the main contributors. Core was up to 3% y/y from 2.7% y/y the previous month. ECB will find itself in a hot seat after these reports to raise interest rates at least to zero. Higher interest rates could negatively impact growth in the Eurozone thus leading to stagflation (low growth and high inflation). 

GBP 

BOE Governor Bailey stated that evidence of growth slowdown are becoming apparent and that it is still appropriate to tighten monetary policy in current circumstances. Markets interpreted his comments as a nod that monetary policy will not be as aggressive as thought. Q4 GDP was revised to 1.3% q/q from 1% q/q as preliminary reported on the back of rising exports and service industries that were boosted by the removal of restrictions. 

AUD 

Over the weekend industrial profits from China for the period of January-February 2022 came in at 5% y/y vs 4.2% y/y in December. Additionally, Shanghai has entered lockdown. All three PMI measures dropped below the 50 level in March. Manufacturing came in at 49.5 vs 49.9 as expected, non-manufacturing was at 48.4 vs 53.2 as expected and drops in both readings dragged composite to 48.8. Newly introduced covid restrictions subdued economic activity and led to declines in output and new new orders. There are signs that this drop is only temporary and that we should see a rebound in April when restrictions are retracted. Caixin manufacturing followed the official PMI and dropped into contraction with 48.1 vs 50.4 the previous month. The report shows drops in new orders and new export orders while input costs continue to surge. 

This week we will have RBA meeting. Wages have still not reached RBAs target necessary for a rate hike, however we will see if recent strong job reports will make them change their narrative. 

Important news for AUD: 

Tuesday:

• RBA Interest Rate Decision 

NZD 

Consumer confidence in the month of March came in at 77.9, down from 81.7 in February. This represents a new low for the reading and ANZ notes “a perfect storm of Omicron, rising living costs, a retreating housing market and rising interest rates soured the mood”. Additionally, inflation expectations have risen to 6%. 

CAD 

January GDP came in at 0.2% m/m as expected as Canadian economy continued to grow entering the New Year. CAD has followed oil closely this week and finished it down in a 150 pips range for the week against USD. Next week’s employment report can be catalyst for CAD strength as it pushes BOC toward a 50bp rate hike. 

This week we will have employment report which is expected to moderate after a blockbuster one in February. 

Important news for CAD: 

Friday:

• Employment Change
• Unemployment Rate 

JPY 

At the start of the week BOJ announced that it will conduct unlimited bond buying operations from March 29 to March 31 in order to defend the yield target of 0.25%. This is the second such operation this year, as previous one was done on February 10. BOJ’s announcement had a detrimental effect on JPY with currency dropping around 200 pips against the majors with USDJPY touching the major level of 125. 

CHF 

SNB total sight deposits for the week ending March 25 came in at CHF731.5bn vs CHF728.9.bn the previous week. This is a decent sized increase, first in a while, as SNB wishes to move EURCHF as far as possible from the parity. Inflation continued to increase in March and came in at 2.4% y/y vs 2.2% y/y in February with core printing 1.4% y/y vs 1.3% y/y the previous month.

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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.}