Forex Market Analysis.

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The dollar has found its feet after two down days in the wake of Fed Yellen’s “proceed cautiously” remarks of Tuesday. EUR-USD has drifted to the low 1.13s after capping out yesterday at 1.1365, which left the Feb-10 peak unchallenged, while USD-JPY has posted a 112.16-66 range, holding above yesterday’s nine-day low at 112.01. Stock markets in Asia mostly firmed before sentiment flagged in quarter-end trade. Japan underperformed as a consequence of USD-JPY’s recent drop, the Nikkei 225 closing with a 0.7% loss, while the Shanghai Composite is flat presently, having given up intraday gains after the PBoC set the CNY midpoint 0.35% higher, making today the third consecutive gain in the reference rate. Oil prices have continued lower, with Brent crude down 1% at $39.64 but above yesterday’s $39.09 low. Oil has been trending sideways for three weeks now. With Yellen having wiped the risk of an April rate hike off the table and injecting doubt into the prospects of a June move, all eyes will be on tomorrow’s U.S. March payrolls release, which we anticipate will shift the balance back to the hawkish side of the scale at the Fed.
EUR-USD has drifted to the low 1.13s after capping out yesterday at 1.1365, which left the Feb-10 peak unchallenged. With Yellen having wiped the risk of an April rate hike off the table and injecting doubt into the prospects of a June move, all eyes will be on tomorrow’s U.S. March payrolls release, which we anticipate will shift the balance back to the hawkish side of the scale at the Fed. While we expect the headline nonfarm payroll gain to fall short of the 242k February pop, as well as the 228k monthly average from 2015, the sharp March rebound in producer sentiment and a tight claims path implies risk that the jobs report captures the March updraft. Additionally, we have a firm ADP trajectory through the 214k February rise. This should offset downside risk implied by as weak path for consumer confidence and restrained vehicle sales and output. We look for EUR-USD to correct back to the 1.1000-1.1200 region.
USD-JPY posted a 112.16-66 range ahead of the European open, holding above yesterday’s nine-day low at 112.01. Stock markets in Asia mostly firmed before sentiment flagged in quarter-end trade. Japan underperformed as a consequence of USD-JPY’s recent drop, the Nikkei 225 closing with a 0.7% loss. S&P ratings warned about the consequences of yen strength in a report released this week, and pressure remains on the BoJ to counter this. BoJ governor Kuroda said earlier in the month that “an additional rate cut to minus 0.5 per cent is possible, in theory,” though policymakers will have to content with the unpopularity of negative interests in Japan. For now, we expect the yen will remain prone to rallying during periods of risk-off in global markets.
Sterling has come under some pressure, ebbing to a two-day low against the dollar today and a three-day nadir versus the euro. Prospects for a dollar-supportive U.S. jobs report on Friday along with strong sterling-bearish arguments seem at play. Division in the ruling Tory party and the risk of Brexit, which incoming opinion polls continue to affirm is a close call, make us bearish on the pound.
EUR-CHF has settled around 1.0900 . The franc had been bid in the wake of the Brussels attacks last week, though the Swiss currency had also been moderately bid in the wake of the SNB announcement of unchanged policy earlier in the month, which left the sight deposit and mid-point Libor target rates at -0.75%. The SNB stressed that the currency remains overvalued, and that it will “remain active in the foreign exchange market”. The comparatively steady path of EUR-CHF following the ECB’s stimulus bazooka in early March would have been a factor in staying the hand of the SNB. The central bank’s boss Jordan said in late February that the central bank has the option, if need be, of boosting the impact of its negative interest rate policy (NIRP) by cutting back on the exemptions that apply to it.
USD-CAD logged a five-month low at 1.2912 yesterday, since recouping to the 1.2950-1.3000 area. The latest down phase has been more a reflection of broader U.S. dollar weakness than oil price dynamics. The ebb and flow of Fed policy expectations is recommencing as an influence in forex markets having been virtually absent in the recent ‘new normal’ years. Crude prices have been relatively steady of late (broadly flat over the last three weeks), consolidating the rebound gains from the 12-year January lows. We’re anticipating Friday’s release of the U.S. jobs report to be supportive of Fed rate hike expectations and there for the U.S. buck, so recommend buying into recent weakness in USD-CAD.
Regards All.
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