G10 FX Week Ahead: BoC will taper its asset purchases
USD: Not much happening this week…Fed blackout period
Spot
DXY91.57
Week ahead bias
Mildly Bearish
Weekly range
91.30 – 92.00
1 month target
91.00
The softening US Treasury yields this past week was a surprise given the disorder that has plagued the market for the last quarter. The softening yields has caused the greenback to depreciate against most of its peers, a trend likely to continue in the week ahead with no clear catalyst to drive yields higher. Data wise, the upcoming week is a sleeper with key data only coming form the housing market with existing and new home sales. We also enter the FOMC blackout period ahead of the FOMC meeting on the 28th of April we expect the week ahead to be very quiet favoring a slight downtrend in the greenback.
Biden will also be hosting a virtual climate summit with world leaders which takes place on Thursday. There is growing speculation that the US may announce aggressive Greenhouse Gas emission which could hit Petro-currencies including the loonie…at this point its all just speculation.
CAD: Its going to be an interesting week – tapering vs. pandemic impact
Spot
USD/CAD1.2498
Week ahead bias
Neutral
Weekly range
1.2400 – 1.2600
1 month target
1.2500
The Covid-19 situation in Canada remains concerning, with cases rising at alarming rates. Despite the current environment which has generally supported sentiment for commodity currencies and oil rallying, CAD was the worst performing currency in G10 after the dollar this past week.
This week it will all be about the Bank of Canada rate announcement on Wednesday. It is widely expected that the BoC will taper its asset purchases: with consensus suggesting that purchases will be trimmed by another CAD1bn. More details about the pace of the announced reduction in the BoC balance sheet will be in sharp focus, along with the updated forecasts on the economy. There is room for CAD to rally after the announcement, but the worsening contagion situation in Canada and the not-so-fast vaccination roll-out are likely to weigh on the loonie. This may leave CAD vulnerable to the worsening domestic economy.
EUR: Its all about the ECB
Spot
EUR/USD1.1980
Week ahead bias
Mildly Bullish
Weekly range
1.1880 -1.2100
1 month target
1.2000
The EUR/USD has had a good month so far despite the current struggles with Covid across most of Europe. The markets seem be betting on the recent turnaround in European vaccine rates which could suggest a strong recovery later this quarter. The highlight of the week will be Thursday’s ECB meeting. Given the current environment most see very little downside for European rates and the EUR.
The economic calendar is a little more exciting than that of the US with both April PMIs and consumer confidence scheduled for release. Despite the lockdowns, activity levels appear to be rising which is likely to suggest further improvement in the weeks ahead leading to a strong Q2 recovery.
GBP: Bad news be damned…expect the GBP to bounce back
Spot
GBP/USD1.3796
Week ahead bias
Mildly Bullish
Weekly range
1.3660 – 1.4000
1 month target
1.4100
Vaccine related concerns aside, the GBP got another dose of bad news with the resignation of the BoE Chief Economist Haldane (a hawk). Despite the bad news, this does not change the BoE policy outlook -lower for longer as tightening was not on the table even prior to his resignation. While GBP has taken it on the chin for the last few weeks, we expect downside to be limited given the growth advantage vs. the eurozone given its fast vaccination process.
On the data side, March CPI should bounce back from the February low reading while on Friday, the focus will turn to the April PMI Services, where optimism about reopening is likely to lift the reading. The focus will also be on Jobs data (Tue) and Retail sales (Fri). Generally, the UK data next week should give some meaningful support to GBP and with USD appearing to lose some steam, GBP should grind towards the 1.4000 level.
Currency Chart
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