Booming commodities and a bearish greenback | FX Weekly
USD: FOMC minutes will be a non-event
Spot
DXY90.44
Week ahead bias
Mildly Bearish
Weekly range
90.00 – 91.00
1 month target
90.00
The markets have coped quite well with the spike in CPI last week vis-à-vis the Fed’s dovish policy stance. This divergence is likely to continue to play out over the next little while and further support the greenback to depreciate against most of its peers. This week’s US calendar is very light with only April housing starts and new home sales. The highlight of the week will be the release of Aprils FOMC meeting which is likely to be a non-event given Powell’s press conference words ‘now is not the time to talk tapering’.
This week will also see China release April retail sales and industrial production. Markets will be watching whether the Chinese raise any concerns over the recent commodity price increases. We look for relatively quite week with not much out there to change the current downward pressure on the greenback.
CAD: Up up and away for the loonie
Spot
USD/CAD1.2125
Week ahead bias
Mildly Bearish
Weekly range
1.2000 – 1.2160
1 month target
1.2000
The loonie remained relatively sheltered from the swings in risk sentiment last week, possibly signaling that the CAD may still have legs to appreciate a little more against the USD. The loonie continues to be supported by a less dovish BoC and most expect that the traction gained on the vaccine rollouts will likely add to an already bullish sentiment. Any bad data over the next few weeks is likely to be ignored given the national covid-19 restrictions.
The key event this week will be the inflation report for the month of April. Markets are positioning for a strong read in Canada given the big jump in US CPI this past week. That said, the restriction measures across most of the provinces will likely prevent a significant jump in prices compared to the US. The main differentiator between Canada and the U.S. continues to be bank policy with the BoC more likely to be prompted to unwind asset purchases faster should there be a significant jump in inflation readings. USD/CAD is likely headed toward the 1.2000 level given the current environment.
EUR: The EUR/USD is set to appreciate
Spot
EUR/USD1.2119
Week ahead bias
Mildly Bullish
Weekly range
1.2050 – 1.2200
1 month target
1.2200
The Euro weathered the storm last week with first set up strong US data. The main driver keeping the EUR/USD supported is the dovish Fed and the lower for longer rhetoric despite rising inflation. In addition, most expect the Eurozone recovery to begin gathering steam as economies start to re-open after third wave lockdowns which should be EUR supportive.
In the week ahead, there will be speeches from ECB big hitters, such as Lagarde and Lane. We’ll also see the first revision to 1Q EZ GDP and flash PMIs for May (Friday) – expect strong readings for both data points. German elections may also affect the EUR this week candidates debating on Thursday.
GBP: Data likely to drive the pound higher
Spot
GBP/USD1.4079
Week ahead bias
Mildly Bullish
Weekly range
1.3970 – 1.4200
1 month target
1.4400
The GBP broke the 1.4000 psychological level last week with relative ease despite a blockbuster US April CPI which was not enough to hold back the currency. Domestically, there continues to be consensus toward a strong recovery despite the India Covid variant which has only been linked to specific regions. The vaccines seem to also be working against this variant allowing for the general reopening story to remain on track which is likely to support the GBP in the weeks ahead.
Datawise this week’s releases should all support the GBP. On Tuesday, markets are looking for a decline in the unemployment rate, CPI on Wednesday should edge higher and on Friday April retail sales should be very strong. The data points this week should all point to an economic outlook that is improving. Put together, most expect the GBP to continue its ascent over the medium term.
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