USD: One of the biggest perceived risks to the 2021 recovery story playing out in financial markets is a disorderly rise in US yields. Thus, it has been surprising this week to see the large decline in US yields, despite above consensus US CPI and retail sales. The fact that US yields have appeared to enter a two-way market already does tend to soften the risk of a tantrum. Numerous economists are tempted to say that DXY made an important corrective high at 93.44 at the end of March – and is now heading for a retest of the year’s lows at 89.21. But we will need events in Europe (progress on vaccinations, EU Recovery Fund) to play their part in the global recovery story. Today, expect another strong US consumer sentiment reading and a focus on the 5-10 year inflation expectations survey. These expectations are already running at 2.8%. 91.50-92.00 may well be the DXY range today.
CAD: March housing starts data is expected to show that starts remained elevated at 250K annualised in March (cons. 255K) versus 245.9K in February. Continued strength in the home re-sale market and very elevated permit issuance of late suggest that they will stay firm in the near term. February wholesale sales are expected to decline 0.4%m/m after increasing 4.0% in the previous month. USD/CAD features support at 1.2502, with 1.2576 serving as resistance.
EUR: The Eurogroup of Eurozone finance ministers meet today and will be discussing progress on the EU Recovery Fund. Currently, this is stuck in the German constitutional court – with no indication when progress will materialize. Expectations are that grants from this fund will be released early in the third quarter, and any delay here will be ‘catastrophic’ – according to French officials. However, the good news is that the 7-day rolling average of vaccinations has inflected higher in Europe over the last ten days, while new case numbers are stabilizing. Calm in the US bond markets will encourage investors to position for the European late 2Q recovery, suggesting any EUR/$ pullbacks are limited to the 1.1880/1900 area.
GBP: Investors have been reluctant to jump back into GBP longs and some caution may be warranted ahead of the Scottish parliamentary elections on 6 May – where the appetite for independence will be assessed.
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