FX week ahead: The block in the Suez Canal & a low-vaccination situation dominate markets
USD: Greenback expected to remain in rally mode
Spot
DXY92.70
Week ahead bias
Mildly Bullish
Weekly range
92.40- 93.30
1 month target
92.00
The greenback continues to soar against most of the G10 which is likely to continue in the days ahead. On the calendar this week are a few inputs that are likely to be dollar positive. The first - March employment numbers (ADP on Wednesday and NFP on Friday) should be strong. The unemployment rate is also expected to dip to 5.9/6.0% from 6.2% but not enough to sway the Fed.
The second key input will be Joe Biden’s launch of his $3trn infrastructure plan. It will also be interesting to see how the market reacts to any suggestions of tax hikes for corporates and the wealthy and perhaps a Capital Gains Tax hike too. Most analysts continue to maintain a bearish dollar scenario for later in the year, but for now expect the greenback to remain supported compared to its other currency peers.
CAD: BoC suggests Canada will be the first to taper
Spot
USD/CAD1.2580
Week ahead bias
Neutral
Weekly range
1.2480 – 1.2680
1 month target
1.2500
The Bank of Canada was front and center this past week where they first signaled the unwinding of part of the emergency liquidity program and then suggested that they will be the first of the developed central banks to begin a consistent tapering process over the coming months. The first announcements of the tapering process is likely to be communicated at the April meeting, though size and frequency will depend on the health of the bond market over the coming weeks. In all likelihood, the BoC will manage both frequency and quantum so as not to trigger excessive volatility in the bond market.
The suggested tapering news has kept the CAD from steeper losses against the USD which continued to gain strength against most majors this past week. This week’s economic calendar includes January GDP numbers, however, direction of the oil prices should be a bigger driver for the loonie in the short term. The Suez Canal blockage continues to remain unresolved prompting supply chain shortages globally. The OPEC+ meeting will also have an impact of the trajectory of the CAD.
EUR: A third wave and lockdowns continue to dominate
Spot
EUR/USD1.1800
Week ahead bias
Mildly Bearish
Weekly range
1.1700 - 1.1870
1 month target
1.1800
There are few signs yet that the dollar correction is over – that leaves EUR/USD vulnerable to 1.1700 in the week ahead. Much focus will remain on the virus situation in Europe and whether lockdowns can slow rising case numbers and also whether the slow pace of vaccinations can finally reach exit speed.
The data calendar this week should see a pick-up in the pace of Eurozone CPI in March, although nothing to bother the ECB. We should also see more readings of consumer and business confidence across the region. These have so far held up well, although have been largely taken before fresh lockdowns and also before Europe’s most recent challenge – the Suez blockage – which could start to weigh on Europe’s industrial sector should it not be resolved quickly.
GBP: Sitting pretty compared to the euro
Spot
GBP/USD1.3800
Week ahead bias
Neutral
Weekly range
1.3700 – 1.3900
1 month target
1.4400
Data flow from the UK was mixed last week where January unemployment dropped more than expected while inflation was lower than market consensus. In other news, the UK-EU spat over vaccine supplies seems to have eased which is great news for the UK and should allow the UK government to continue with their timeline of reopening the economy, continuing to support the GBP compared to other G10 currencies.
The UK economic calendar is every light this coming week. On the Bank front, there are two BoE speakers scheduled to speak but no expectations that either of the two speakers (Saunders and Tenreyro) will deviate from any of the recent bank communication and rhetoric. Concerns of a third wave of the virus and slower vaccination progress in the Eurozone are likely to widen the recovery gap between the EU and the UK which will most likely affect both currency valuation.
Currency Chart
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