The weaker-than-expected US jobs report failed to provide the USD with persistent headwinds. FX markets digested the disappointment rather swiftly. The USD received additional support from surprisingly hawkish remarks from Fed members Jerome Powell and William Dudley, who kept in play the idea that a first rate hike may occur June.
We expect this-week U.S. retail sales to be clearly above consensus estimates, while industrial production and capacity utilization are likely to be weaker. The same may apply to housing starts and building permits. We are broadly in line with the consensus regarding CPI.
The ECB meeting is scheduled for next week (Wednesday). We should expect little news from ECB President Draghi’s press conference. The weaker EUR is already pushing up import prices of core consumer goods, so the risk of an outright deflation in the Eurozone is very small now. Let us remind that the ECB’s Governing Council member Yves Mersch said the bank would be free to adjust its quantitative easing if it advanced faster than expected towards its goal of lifting inflation. Such a rhetoric is rather unlikely already at April ECB meeting. However, this issue may be raised in the coming months.
We expect continuation of the EUR/USD fall in the short term. Low yields on German bonds made the EUR a funding currency for carry trade. We are looking to get short at 1.0675. Our short-term target is 1.0460, just above 12-year low of 1.0457. We should remember, however, that the strengthening USD weighs on US economic recovery and may delay Fed hikes. That is why it may be appropriate in case of long-term traders to stay sideways on the EUR/USD until the release of the U.S. first quarter GDP estimate and the next FOMC meeting, which are both scheduled for April 29.
GBP
Britain’s CPI data (Tuesday) and labor market report (Friday) will be released this week. The GBP/USD is rather unlikely to strengthen given the uncertainty with respect to upcoming general election on May 7.
February inflation data are likely to remain unchanged from the previous month. The unemployment rate is likely to fall to 5.6% in the three months to February, and regular pay growth measure (excluding bonus) will accelerate to 1.8% from 1.6% in the previous month.
In our opinion the short-term target for the GBP/USD is the area of 1.4500, near daily low on June 11, 2010.
CAD
The Bank of Canada meeting is scheduled for April 15 (Wednesday). We expect the bank to keep the overnight rate unchanged at 0.75%, in line with consensus expectations. The reaction of the USD/CAD to the BoC decision would be rather limited. Inflation (Friday) is expected to remain flat at 1%, the lower end of the BoC’s target range.
In our opinion the CAD may stay relatively strong. We stay sideways on the USD/CAD, but selling EUR/CAD may a profitable strategy.
AUD
The AUD has benefited from the RBA’s on-hold decision last week. The market expects now a cut in May, but in our opinion these expectations may weaken that should support the AUD. Investors will be focused on very important Australian employment figures this week (on Thursday), which may surprise positively.
We think the AUD may stay relatively strong. We stay flat on the AUD/USD, but are looking to buy AUD/NZD at 1.0135.