Markets were forced to rethink their optimism on Russia-Ukraine peace talks yesterday after Russia said there were no major breakthroughs in negotiations and NATO members warned that a withdrawal of Russian troops is still not on the cards. At the same time, developments in the commodity market have offset the hit to risk sentiment, as the Biden administration is reportedly weighing the option of releasing one million barrels a day of crude from the US reserves to counter the rise in prices. The USD has remained mostly flat overnight We continue to doubt there is much more downside for the dollar from these levels, and markets may rebuild more long-dollar positions ahead of tomorrow’s nonfarm payrolls which may well endorse the recent hawkish re-pricing of Federal Reserve tightening expectations. Today, markets will keep an eye on US personal spending figures for February and a speech by the Fed’s John Williams. Observe the foreign exchange rates.
USD/CAD fell below 1.2450 yesterday for the first time since last November, as the combination of broad USD selling flows and a rebound in energy prices spurred the break lower. The next obvious target would be October’s lows of 1.2288, although most analysts suggest that from the current levels it may not be a perfect straight line for the pair. The CAD should continue to gradually benefit from the positive channel created by higher energy prices, as geopolitical uncertainties linger on. In that respect, today’s OPEC+ meeting is unlikely to have much of a lasting impact on oil prices, as the cartel looks set to stick to the planned removal of a further 400k bpd of curbs in May while so far the largest oil producers have failed to ramp up production in sync with the gradual cap lifting. Meanwhile, the latest Canadian GDP data are unlikely to give the CAD an extra impetus, as the BoC already stressed this month that Q122 growth has been more solid than initially thought.
German CPI data surprised once again to the upside yesterday, with headline inflation jumping to 7.3% in March from February’s 5.1%. Spanish inflation, also released yesterday, nearly reached 10%. All that translated into a stronger euro, which has been able to hold on to gains despite the market’s optimism on peace talks is fading. Undoubtedly, the news of US oil possibly being released is also a positive for the euro, given the eurozone’s dependence on energy exports, but it is still unlikely to drive crude prices sustainably lower, keeping the prospect of material recovery in the battered eurozone’s terms of trade remote. Today, we’ll see the CPI numbers from France and Italy, while euro zone-wide data will be released tomorrow. EUR/USD should trade in the 1.11/1.12 area today.
It’s all very quiet in the UK today, both on the data side and in terms of Bank of England communication. Most see mostly downside risks from this point for the GBP against both the USD and EUR.
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