FX Week ahead: US Treasuries continue to cause havoc and chaos
USD: Treasuries continue to cause havoc on FX and markets
Spot
DXY91.95
Week ahead bias
Mildly Bullish
Weekly range
91.20 - 92.50
1 month target
91.0
The US Treasury sell-off continues to remain front and center despite a February NFP that printed higher than expected. Until the markets see some stability, the risk of a bear market bounce on the greenback is likely to remain a strong possibility in the near term. The week ahead is rife with market moving data including U.S. CPI on Wednesday and PPI on Friday. US Treasuries are likely also going to have to brace for volatility from 10yr and 30yr auctions on Wednesday and Thursday. The Fed will likely intervene if 5–10-year inflation expectations run hotter than the current 2.7% estimate.
All said, US Treasury yields are likely to keep the greenback supported but once an equilibrium is reached expect the market to punish the dollar while propping up pro-recovery G10 FX.
CAD: BoC likely to tow the line and maintain “lower for longer” rhetoric
Spot
USD/CAD1.2670
Week ahead bias
Mildly Bearish
Weekly range
1.2600 - 1.2730
1 month target
1.2500
The Canadian economy is rebounding, oil prices are trending higher, inflation expectations are rising and the absolutely battered energy sector is starting to pick up. The stars seem to be aligning for the Canadian economy which suggests that the BoC’s next move is likely to taper its bond purchases.
This week’s BoC meeting is likely to drive the CAD’s direction in the short term. Governor Tiff Macklem will likely have no interest in endorsing any tapering expectations and he’s likely to remain broadly in line with the recent Fed’s rhetoric: stressing that monetary stimulus is here to stay. Net sum – FX impact should be limited. Data-wise, jobs figures for February are likely to be positive keeping the CAD supported.
EUR: Its not me its you! Euro will rebound once US Treasuries settle
Spot
EUR/USD1.1920
Week ahead bias
Mildly Bearish
Weekly range
1.1825 – 1.2020
1 month target
1.2200
The rise in US Treasury yields forced the EUR/USD well below the initial support of 1.1950 on Friday. The fact that initial support of 1.1950 did not hold suggests that the pair is likely to target the 200 moving day average near 1.1825 next.
On the data front, this week’s calendar focuses on the ECB. Most except Lagarde to discuss the bond sell off and its impact on the euro. For the ECB meeting itself, expect a modest downward revision to 2021 GDP forecasts and an upward revision to CPI forecasts, but probably not enough to make a material shift in the current EUR levels.
GBP: Current troubles are just a blip - expect GBP to dominate
Spot
GBP/USD1.3820
Week ahead bias
Mildly Bearish
Weekly range
1.3680 – 1.4020
1 month target
1.4400
The pound got whacked again by the sharp rise in U.S. Treasury yields. That said, the GBP has been able to weather the storm compared to most of its European peers. The current troubles for the GBP and its current negative trajectory are likely sentiment induced rather than a correction in trend. Most analysts expect the GBP/USD to move above the 1.40 level once US Treasuries settle and likely toward 1.50 toward the latter part of the year. In the short term, the GBP/USD support remains at 1.3750.
It will be a quiet week ahead for the UK. GDP numbers that are scheduled to be released Friday are likely to print a fall of 5%, driven predominantly by COVID related closures. The GBP data print is unlikely to have any impact on the currency in light of the fast vaccination and the anticipated strong economic rebound in 2Q.
Currency Chart
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