Global equity futures are pointing to a tentative rebound in global risk assets today after a major sell-off yesterday triggered by fears of an economic slowdown at a time when central banks are tightening policy. It is not surprising to see the dollar remain strong in such an environment, retaining its safe-haven attractiveness whilst still benefiting to a certain degree from the Fed’s front-loaded tightening story. It’s a quiet day in the US calendar today, with some focus only on the NFIB Small Business Optimism survey for April. There are, however, a number of Fed speakers scheduled this afternoon: the “neutral” John Williams and Tom Barkin, the dove Neel Kashkari and the hawks Loretta Mester and Christopher Waller. The impact of any policy comment might, however, be reduced as markets may wait for tomorrow’s CPI figures before any material re-adjustment in the Fed’s rate expectations.
The strong dollar/weak risk tone combination is weighing on the commodity bloc and has driven the CAD lower to start the week. The CAD weakened to well above 1.30 yesterday and overnight and is currently trading in the 1.2980s at the time of writing. While the CAD continues to benefit from sound domestic fundamentals and strong commodity prices, there is little fighting the more adverse external environment for the CAD. The USD continues to reign supreme, and the volatility index remains elevated. Our long-term outlook for the CAD remains positive and most analysts continue to suggest that current levels may represent great selling opportunities for the USD/CAD.
EUR/USD is once again attempting to find some support in the upper half of the 1.05-1.06 range. Some resilience amid yesterday’s turbulent market conditions and a potential stabilization in risk sentiment today could combine to fuel a break above 1.0600 today. Upside remains limited given USD buying and lingering concern about the ban on Russian oil currently under discussion in the EU. On the data side, markets will focus on ZEW figures out of Germany today which is expected to show another drop in May given high energy prices and the prolonged geopolitical risk. We see some modest upside risk for EUR/USD today, with any rally possibly stalling already around the 1.0650 level.
The pound is finally finding some stability after a rough couple of weeks. Some stabilization in sentiment should offer additional support today, and possibly help a return to the 1.2500 mark in GBP/USD. Still, the market’s overly hawkish expectations on Bank of England tightening and uncertainty around the British economic outlook are set to keep GBP/USD capped. We have a 1.2400 target for cable for the summer months, followed by a very gradual recovery in 2H22. The UK data calendar is empty today, and there are no scheduled BoE speakers.