By Kathy Lien, Managing Director of FX Strategy for BK Asset Management.
With U.S. stocks rising sharply on Thursday, all of the major currencies traded higher with the exception of the , which fell for the first time in 5 trading days. The sell-off was driven by the “” from the last central-bank meeting, which highlighted some of the ECB’s concerns. The central bank as a whole saw global economic risks tilted to the downside due to widespread concern over the risk of trade conflicts. They also “broadly agreed” that there was not enough evidence to describe inflation as sustained. What’s interesting is that this diverges with the individual comments from and ECB member , who have been more positive than negative about policy. Nowotny even called for an end to asset purchases this year. Considering that the ECB “minutes” was from their meeting in early March, we are inclined to believe that Draghi’s recent optimism is a better reflection of how they presently feel. But with data consistently surprising to the downside, the euro could still extend its slide toward 1.22, the bottom of its recent range.
The rally in stocks and recovery in is tied to the lack of news on Syria. So far, President Trump has not announced a military strike although this morning he said an attack on Syria “could be very soon or not so soon at all!” Later in the day, there were reports that the U.S. is planning to strike 8 targets but that is not confirmed. For the time being, no news is good news for the markets who have welcomed the president’s convoluted comments. increased slightly while and grew at a slower pace. The University of Michigan’s index is scheduled for release on Friday. Although USD/JPY ended the NY session above 107, it remains stuck in a tight 106.50-107.50 range. A break of either of these levels is needed to usher in a new trend for USD/JPY.
One of the best-performing currencies this week is , which either traded higher or held steady for each of the last 5 trading days. Thursday’s move took the pair within arm’s reach of its 2-month high above 1.42. What’s remarkable is that sterling has been able to shrug off weaker data and the lack of progress on the Irish border issue according to European Union Brexit Chief negotiator Michel Barnier. He doesn’t expect a deal in the coming weeks, which means they don’t anticipate any near-term progression on Brexit. Although has had a nice run, there’s a lot of resistance between 1.4250 and 1.4300.
The extended its gains while the and dollars consolidated. Stronger fueled further gains while weaker in Australia triggered more selling. numbers were scheduled for release from New Zealand Thursday evening and given the performance of the currency and recent data, investors were looking for another positive report. AUD and NZD traders were also watching China’s . A smaller trade surplus could add pressure to , which has quite a bit of resistance between .7785 and .7810. took a brief trip above 1.26 before settling the day below the round number. Although eased according to the most recent reports, extended their gains. President Trump also said a NAFTA deal is close but his decision to cancel a trip to the region (he said to focus on Syria) and U.S. trade representative Lighthizer’s decision to forgo participating in the NAFTA summit in Peru that begins Friday is a sign that a deal won’t happen this weekend. As a result, USD/CAD is vulnerable to end-of-week profit taking in a rally that could take the pair back above 1.26.
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