FX Week ahead: Greenback riding high on recovery prospects but not for too much longer
USD: Riding high and its well deserved!
Spot
DXY93.17
Week ahead bias
Mildly Bullish
Weekly range
92.70 - 94.00
1 month target
93.00
The DXY continues to edge higher primarily driven by the disparity of how the Covid crisis has been handled between Europe and the U.S. The U.S. is moving ahead with its stimulus plan and is accelerating its vaccine rollout. Europe on the other hand, continues to be dragged down by red tape and politics with its keynote fiscal stimulus plan stuck in court and a vaccine rollout that has fallen short of expectations. It will be difficult to see this narrative change in the short term with Europe extending lockdowns in numerous regions.
Datawise this coming week is light with most of the attention on the release of FOMC minutes on Wednesday and a slew of Fed speakers participating in the IMF spring meeting. There is little doubt that the Fed will continue its dovish tone with the continued “lower for longer rhetoric”. Nonetheless, most expect the DXY to continue to edge higher until a turnaround in Europe materializes.
CAD: BoC likely to taper at April 21st meeting
Spot
USD/CAD1.2580
Week ahead bias
Mildly Bearish
Weekly range
1.2450 – 1.2650
1 month target
1.2400
Canadian data continues to surprise to the upside with last week’s GDP data beating expectations handily. The markets are beginning to speculate that the BoC will increase tapering expectations at its April 21st meeting with good contributing to hawkish expectations. Most expect the BoC to be very careful not to rock the battered bond market in the process of unwinding its asset purchase programme.
Looking at the week ahead, the data calendar looks very quiet, and focus will be on how crude will behave following today’s OPEC+ meeting and in light of fresh lockdowns in Europe. USD/CAD could press the 1.2500 support next week as the environment for commodity currencies is likely to turn more bullish.
EUR: Red tape, gridlock and lockdowns dominate the current landscape
Spot
EUR/USD1.1748
Week ahead bias
Mildly Bearish
Weekly range
1.1630 - 1.1760
1 month target
1.1750
Diverging trends between Europe and the U.S. continue to weigh on the EUR/USD. Last week the pair held the 1.17 level but a stronger than expected NFP number on Friday and a further treasury selloff could cause a further breakdown of the pair possibly toward the low 1.16 levels.
The European calendar is very quiet during the Easter holiday shortened week with the exception of the ECB March meeting minutes which are to be released on Thursday. Of importance will be the focus on how broad support was for the front-loading of the Pandemic Emergency Purchase Programme and whether the EU’s Recovery Fund can overcome the hold-up in the German constitutional court.
GBP: Vaccine rollouts continue to support but euro dragging down the pound
Spot
GBP/USD1.3791
Week ahead bias
Neutral
Weekly range
1.3650 - 1.3950
1 month target
1.4400
While the GBP continues to climb against the EUR, the EUR/USD decline has pushed the GBP/USD pair lower over the past week. That said, the theme of the fast vaccination process continues to support the UK which has been underscored with the easing of the restrictive measures in the UK. The expected boom in the UK economy should continue to support the GBP over the next few months and is most likely to add support to the GBP/USD pair which is forecasted to test 1.50 toward the latter part of the year.
It is a very quiet week on the UK data front. The March UK Construction PMIs (Thursday) should have a limited impact on the pound. For the short term, GBP/USD direction will be largely about EUR/USD.
Currency Chart
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