USD: Yikes! A record 92bn dollar deficit is expected for April
Spot
DXY89.84
Week ahead bias
Mildly Bearish
Weekly range
89.50 – 90.50
1 month target
89.00
The greenback continues to slip and slide lower against most of the G7 currencies. This is quite remarkable given that US 10-year yields have risen 70bp and a number of Fed participants want to be talking tapering sooner rather than later. The weakness in the dollar continues to be driven by that fact that the core of the Fed is unlikely to move from the “lower for longer” stance. These core views are unlikely to be challenged in the week ahead.
The week ahead will see a variety of Fed speakers, who largely sit on the dovish end of the spectrum. Data-wise, the US calendar is very light. Focus will be on any upward revisions to 1Q21 GDP, home sales and durable goods orders data. We will also see May’s advanced US trade balance where a $92bn deficit is expected. All in all, expect the greenback to maintain its bearish sentiment in the week ahead.
CAD: With a USD/CAD flirting with the 1.20 level, how strong can the loonie get?
Spot
USD/CAD1.2028
Week ahead bias
Neutral
Weekly range
1.1980 – 1.2100
1 month target
1.2000
The CAD continued it rally last week, supported by strong domestic data and continued acceleration of the vaccination rollout nationally. Inflation rose a whopping 3.4% in April despite restrictions in many parts of the country. Friday’s retail sales were also significantly stronger than expectations and came in at 3.6% MoM. Data prints have clearly been extremely positive, mitigating the awful April jobs report. All said, the BoC is likely to continue its hawkish stance on continued tapering which further support the loonie’s rise.
This week is very light data-wise. For the most part, the CAD is likely to take direction from external factors including commodity swings, US Fed rhetoric and general market sentiment. The USD/CAD is very close to its psychological 1.2000 support level which is likely to be heavily tested in the current risk on environment.
EUR: Its not so much about a strong euro but rather a week greenback
Spot
EUR/USD1.2206
Week ahead bias
Mildly Bullish
Weekly range
1.1250 – 1.2310
1 month target
1.2300
The euro continues to hold its own against the greenback as confidence in a European recovery continues to intensify. From an equity perspective the Eurostoxx has outperformed the S&P 500 and investors continue to bet on additional gains as the recovery takes form.
In the week ahead, the highlight of the week will be May readings for consumer and business confidence. We also see the May reading of the German Ifo, which is projected to be a little softer little softer based on the manufacturing PMIs.
GBP: Looks like the GBP is on the verge of breaking a multi-year high
Spot
GBP/USD1.4200
Week ahead bias
Mildly Bullish
Weekly range
1.4010 – 1.4380
1 month target
1.4400
GBP/USD shook off last week’s USD short lived rebound and continues to grind higher. Strong PMIs have provided support to the GBP and have also underlined a very optimistic case for an economic boom in the UK over the coming months. Though domestic data is unlikely to provide additional support, the soft USD environment will allow for the GBP/USD pair to breach the multi-year high of 1.4237 and head toward the 1.44 level.
It is a quite week on the domestic data front, with April UK public finance numbers (Tuesday) to have a limited effect on GBP. Similar to other currencies, the GBP is likely to take direction from general market themes.
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