USD: The dollar is holding onto its modest gains made Friday. The Fed’s dovish stance will come under scrutiny from hot US data as we move through the week, although the US manufacturing ISM figure yesterday and Fed Chair Powell reminding the market of the uneven US recovery are keeping US rates markets subdued. Today sees the release of the March US trade data. This is expected to push out to a record monthly deficit of US$74bn - a deficit that looks likely to widen further over the coming months. A debt-financed consumer boom driving a wider deficit does not look particularly positive for a currency and that is why, barring shocks, we think dollar rallies prove short-lived.
CAD: The CAD is tracking a slightly lower against the USD but is holding up relatively well against its major commodity peers. Most continue to expect USD supply to emerge on modest gains through the 1.23s. Canada reports Building Permits and Trade data this morning. Governor Macklem returns to Parliament this evening to speak with the Senate Committee on Banking, Trade and Commerce.
EUR: In a welcome development, it seems that the vaccination rates are picking up in the likes of Germany and Italy - lending greater confidence to the re-opening narrative for later in 2Q. Momentum seems to be building for the re-opening of travel within Europe. The catch-up story in Europe will be a major theme for FX markets for the rest of 2021 - especially if we see further progress on the Recovery and Resilience Fund, where grants could be released as early as July. Today’s data calendar is light - just ECB's Villeroy speaking. Most are bullish on EUR/USD – a move above 1.2080/2100 would be encouraging for our views.
GBP: Thursday sees the twin GBP event risks of the BoE meeting and May 6th local and Scottish parliamentary elections. On the BoE, GBP could get a lift given that the market is hyper-sensitive to the word 'tapering' - and any technical justification for tapering could get lost amidst the message of upward revisions to growth forecasts. GBP/$ to find support near 1.38 and should be able to push toward 1.40 later in the week.
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