FX Week ahead: This week’s focus is all on the Fed
USD: Its all about the Fed
Spot
DXY91.870
Week ahead bias
Mildly Bullish
Weekly range
91.20 – 92.20
1 month target
91.00
The week ahead will be highlighted by Wednesday’s Fed meeting. New set of GDP quarterly projections are likely to be revised higher from the 4.2% median in December. The markets will also be keenly interested in the Fed Funds rate Dot Plots. All said, it is very unlikely that the Fed will change its rhetoric of longer for longer which is likely to prevent the greenback from running ahead.
Data wise, the coming week will be less impressive. February retail sales should be much lower than the stimulus-driven January surge. Inclement weather will also have impacted February’s industrial production which is also likely to print on the weaker side. Finally, there will be FX implications from US-China political developments – officials are to meet on Thursday to discuss security implications of the US economic relationship with China.
CAD: Blockbuster jobs data and upcoming CPI may cause BoC to pivot
Spot
USD/CAD1.2524
Week ahead bias
Neutral
Weekly range
1.2450 – 1.2450 – 1.2600
1 month target
1.2500
The blockbuster jobs data on Friday has all but erased concerns of a slowing economy with employment rising by 259K in February with the unemployment rate dropping to 8.2%. This will likely play into the direction the BoC will take moving forward given their uninspiring policy message remained unchanged this past week. The BoC will likely feel more pressure to begin tapering on the 21 April meeting, when new economic projections will also be released.
Data wise, this coming week will highlight February’s CPI figures. Signs of rising inflation may see the markets doubt the BoC 2023 forward guidance, and most likely add some pressure to Canadian front-end rates. All this may help the Canadian dollar weather some USD strength over the coming week.
EUR: Look out for the euro to accelerate
Spot
EUR/USD1.1925
Week ahead bias
Neutral
Weekly range
1.1835 – 1.2050
1 month target
1.2200
EUR/USD held above the 1.1830 level this past week. The question remains was that the expected correction or is there more to come? US treasuries have been holding near the 1.6% level, and with the Fed event risk next week, we may see the EUR/USD break the 200 moving day support. Adding fuel to the fire are the COVID challenges in Europe with rising case numbers, slow vaccine rollouts and issues related to the AstraZeneca vaccine.
Data wise, it is a very quiet week for European data after the recent ECB rhetoric. The ECB have said their front-loaded PEPP buying will not register in the weekly reports until Monday, 22 March. That said, most don’t think that more aggressive PEPP will have much impact on the EUR.
GBP: BoE likely to maintain positive outlook
Spot
GBP/USD1.3886
Week ahead bias
Mildly Bullish
Weekly range
-1.3785 - 1.4070
1 month target
1.4400
The BoE is set to meet on Thursday and by most accounts they are likely to keep their positive outlook in place with fast paced vaccinations supporting the optimistic outlook on the economy. The market is already pricing in a one hike for 2022 and another one for 2023. An upbeat BoE message might be a mildly positive for GBP but is unlikely to propel dramatic GBP gains.
Stabilization of US Treasuries is likely to cap the recent GBP/USD decline. GBP/USD is most likely going to attempt to grind higher to the 1.40 over the next few days. Most analysts continue to expect a more pronounced GBP/USD in Q2 possibly breaching the1.50 level toward the latter part of the year. It is a very quiet week data wise in the UK. The February Public sector net borrowing date (Friday) shouldn’t have much of an impact on GBP.
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