GBP
On Thursday the BoE kept rates unchanged at 0.1%, while increasing bond purchases to £745b, up from £645b. This was in-line with market expectations. There was limited volatility following the meeting, with the downside modestly favoured. The recent path is lower despite some strength earlier in the week, and while in the near-term this appears set to continue, the broader outlook is still very much influenced by a mixed bag of driving factors that keep things uncertain. There is Brexit negotiations, the upstart of the economy following the Corona Lockdown, and the dollar’s status to think about. Risk trends have been helping keep cable buoyed. If global stocks begin to decline in earnest on any number of factors, then look for weakness to become a predominant trend. GBP/EUR continues to be a mystery as it floats in what is becoming a 4-yr trading range. There is nothing of major consequence on the data calendar this week.
EUR
Last week we noted EUR/USD’s tendency since early 2018 to fail quickly after rallies. That has been the case thus far following its failure to hold over 1.14. Should we see more selling, more pressure could build on long-term trend support near 1.08 (with 1.0635 as the most massive level), but until it breaks, it is to be respected as a strong floor. At some point that seems likely to happen, but instead of predicting when we will take a reactionary stance. Tomorrow the market is expecting upticks in Euro-area and German Markit PMI figures, but of course still in contraction territory. On Thursday, the minutes from the most recent ECB policy meeting will be released, but not expected to shake things up too much.
USD
The recent dollar recovery could morph into a larger one, but will need to stabilise at these levels quickly. Currently the real interest lies is in how USD trades against emerging market currencies, because if it is to reassert itself it should do so in that space first before taking on developed market currencies. At this time the recent rally is holding ‘ok’ versus some of the larger EMs, but should that fail then perhaps we will see some strength out of the larger currencies as well. Durable goods orders are expected to rebound sharply on Thursday, while initial jobless claims are expected to be over 1.3mm for last week, but on an improving course. On Friday, inflation data via the Core PCE Price Index is expected to ease to 0.9% YoY from 1%.
CAD
The Canadian dollar has been quiet the past week-and-a-half after selling off strongly with the risk-trade earlier in the month. The general trend since March may continue if the dollar doesn’t firm up. If USD is to make a comeback then CAD would likely be one of the first developed market currencies to suffer as a result given its oil dependence. Not a lot of data points to concern ourselves with this week.
AUD
AUD/USD is taking a breather for now after the surprisingly strong recovery from 0.55 up to 0.70. Aussie is seen as swaying with stock market trends until further notice, nothing new on this front. The 0.70 barrier will be a difficult one to cross. In related headlines, the RBNZ is expected to keep New Zealand’s rates on hold tomorrow at 0.25%. For Australia there aren’t any significant headlines to speak of in the coming days.
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