The Fed’s toes will be held to the fire this week as another round of potentially strong data in the US (ISM and payrolls) may add pressure to start discussing tapering. With some possible fresh weakness in Treasuries on the way, USD might find some respite against the low-yielders. Central bank meetings in the UK and Australia should yield no surprise
USD: Fed toes held to the fire this week
Dollar Index
Week Ahead Bias: Mildly Bullish
Range this week: 90.50-91.55
1 month target: 90.00
April saw the dollar suffer a sell-off, with May typically a better month for the greenback in seasonal terms. This week ISM and NFP numbers are in focus- the latter could see in excess of one million jobs added.
EUR: Better placed to withstand US yield rise
EURUSD
Week ahead Bias: Mildly Bearish
Range Next week: 1.1980-1.2150
1 Month Target: 1.2200
1Q21 Eurozone data was a little better than expected with summer on the horizon the rebound seems to be gathering steam. Focus will be on vaccine rollout, lockdowns unwound and any EU recovery fund which could boost Q2 numbers.
JPY: Time for a Japanese re-rating
USDJPY
Week Ahead Bias: Mildly Bullish
Range Next Week: 108.40-109.80
1 Month Target: 108.00
USD/JPY remains beholden to the US Treasury story, which on paper means upside risk to USD/JPY in the week ahead. USD hedging costs for Japanese investors have this week fallen to the cheapest levels since 2014 and surveys suggest there is very little Japanese appetite for buying unhedged Treasuries in the current market environment.
GBP: The BoE to matter more for sterling than the Scottish elections
GBPUSD
Week Ahead Bias: Mildly Bullish
Range Next week: 1.3760-1.4010
1 Month Target: 1.4100
It is a very busy week for GBP, with the focus being on the Scottish elections and the BoE April meeting (both on Thursday). As for the BoE April meeting, we should see a series of upgrades to the Bank’s forecasts and this encouraging outlook suggests the Bank may announce QE tapering.
AUD: RBA to follow Fed’s patient approach
AUDUSD
Week Ahead Bias: Mildly Bullish
Range Next week: 0.7680-0.7780
1 Month Target: 0.7700
Next week’s key event for the Aussie dollar is the RBA rate announcement on Tuesday. The Bank is currently looking at a mixed bag when it comes to key economic indicators. The low inflation profile suggests that the Bank will refrain from any hawkish tilt in its statement on Tuesday, and the market impact may be mostly moved by how upbeat the new economic estimates will be.
NZD: Jobs data unlikely to drive big changes in RBNZ rate expectations
NZDUSD
Week Ahead Bias: Mildly Bullish
Range Next week: 0.7140-0.7250
1 Month Target: 0.7300
The Kiwi dollar found some support at the 0.7200 level for most of this week, moving largely in line with its closest peer AUD. Focus next week will mostly be on the 1Q jobs report in New Zealand as well as Governor Orr’s speeches on Wednesday.
CAD: The stars have aligned
USDCAD
Week Ahead Bias: Mildly Bullish
Range Next week: 1.2170-1.2350
1 Month Target: 1.2300
CAD was the best performing currency in G10 by a large margin last week. he Fed’s reiterated patience and subsequent USD weakness has tended to benefit more those currencies that have central banks leaning towards a more hawkish message, like CAD and NOK.
CHF: Disappointed in EUR/CHF
EURCHF
Week Ahead Bias: Mildly Bullish
Range Next week: 1.0960-1.1050
1 Month Target: 1.1100
We were a little disappointed that the improvement in the European outlook didn’t allow EUR/CHF to break higher over the last week. We still very much like EUR/CHF higher later this year.
NOK: No surprises from the Norges Bank
EURNOK
Week Ahead Bias: Mildly Bearish
Range Next week: 9.8500-10.1110
1 Month Target: 10.0000
The Norges Bank already signalled it will start the tightening cycle later this year, and although we see a non-negligible probability of a hike already coming in September, a new forecast would be needed to justify such a signal from the NB.
SEK: Not deviating too much from its EUR/SEK 10.00 gravity line
EURSEK
Week Ahead Bias: Neutral
Range Next week: 10.0810-10.2290
1 Month Target: 10.0000
Riksbank won’t provide any helping hand to SEK this year or next. Still, in the wider soft USD environment, SEK should stay supported, and EUR/SEK should remain close to its multi-month 10.10 gravity line.
SOURCES: ING
