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Intermarket:
• SP Futures 4173 (+0.05%)
• EUSTXX 3967 (+0.05%)
• Crude Oil 61.60 (-0.88%)
• US 10YR 1.57% (+0.32%)
• EurUsd 1.2112 (+0.12%)
• UsdJpy 107.71 (-0.14%)
• DAX 15300 (+0.06%)
Risk appetite is more resilient into the European Open after Friday’s strong performance on Wall Street coming on the back of better data prints. SP500 slightly up; Vix a tad softer at 17.30s although off the recent lows; 10-year yield to 1.57% and steepening yield curve. The USD is soft. Copper is up. Crude is soft.
India’s Covid situation remains serious even though PM Modi is trying to avoid a nationwide lockdown and the IMF’s 2021 GDP growth forecast of 12.5% appears increasingly at risk.
Rising yields and growth outperformance no longer seem USD supportive as focus has shifted to the global recovery theme, with vaccination levels catching up to the US and UK. Also, markets are starting to wonder how long the FED can delay a hawkish shift now that the Bank of Canada has started tapering and has brought forward the rate hike projection. Here is our full weekly preview.
Looking Ahead: today we get German IFO survey, US March durable goods orders and April Dallas Fed manufacturing activity index. ECB’s Panetta and Lane are also speaking.
Matters that Matter:
• Democratic Senator Manchin wants “more targeted” infrastructure bill that would gain bipartisan support.
• Copper rose to highest since 2011.
• Speculators’ bearish bets on USD rise - CFTC
• Investors shore up defences against rapid rises in U.S. inflation – FT
• U.S. to provide vaccine components, medical supplies as India battles COVID-19 spike
• Draghi says deal reached with EU on Italy’s recovery plan – officials
• Bank of England considers risk of financial collapse from cladding scandal - Sunday Times
• TRY nears record low after Kavcioglu remarks on tight policy
Majors Weekly View:
USDJPY
- Prices posted the 3rd lower weekly high & low last week, with losses of 1 ½ Big Figs. Buyers returned on Friday to post a “hammer” at the daily level, but with the trend of lower daily highs still intact, the outlook remains bearish.
- USD still heavy, offers from 108.00
- Large OPEX today at 108.15-20.
- Markets waiting for BOJ, FOMC.
EURUSD
• Prices posted the 3rd higher daily high & low in a row last week, with gains of over 1 Big Fig. Prices are extended, but in the absence of any sign of reversal, the outlook remains bullish.
• USD weakness lifts EURUSD, but EUR weaker on the crosses.
• Offers reported around 1.2125, perhaps also a barrier option.
AUDUSD
• Prices posted the 3rd higher weekly high in a row last week, but sellers returned from close to March highs, prices closing little changed. As such, we prefer to play the .7700/.7800 range for the time being, until there is a daily close above the ceiling or below the floor.
• AUD supported on USD weakness and global recovery story.
• Copper, Iron Ore supportive.
• Support .7700, resistance .7800.
GBPUSD
• Prices posted a higher weekly high & low last week with initial gains of almost 2 Big Figs, but sellers returned from close to March highs at 1.4010, prices closing the week little changed. As such, we prefer to sell on rallies towards 1.3950 and 1.4000 initially.
• GBP higher on USD weakness.
• BOE directs attention to cladding scandal and potential for financial instability.
FX Weekly ATR Grid
Initial Directional Indications
Comment: Going into the week, USD weakness remains the key theme. However, weakness on the crosses is appearing in EUR while strength in AUD, NZD are also evident.