•The dollar dozed in a snug band on Monday as Japan kicked off a week of holidays, giving investors an extra excuse to idle ahead of a Federal Reserve policy meeting and a raft of global data including on U.S. core inflation and payrolls.
Movements were minimal with the dollar keeping to a mere 14-tick range on the yen and not much more on the euro. Liquidity is set to be puddle deep in Asia this week with China also off from Wednesday to Friday.
All eyes are on the Fed to see what its policymakers made of a first-quarter gross domestic product report that showed strong growth of 3.2 percent, but largely for one-off reasons including a surge in inventories.
The March reading for core personal consumption expenditures (PCE), the Fed’s favoured inflation measure, is due later Monday and there is a risk it might slow to 1.6 percent or even 1.5 percent.
•“The single biggest macro issue at the moment concerns Fed policy and whether inflation is soft enough to justify an ‘insurance’ rate cut - or two,” said analysts at JPMorgan.
“Chicago Fed President Charles Evans has implied a sustained core PCE at 1.5 percent would justify “insurance” cuts even with growth staying healthy and investors will be listening very closely to (Fed Chair Jerome) Powell on Wednesday for any hints about his thoughts on this topic.”
•It was this risk that saw the dollar fall back on Friday despite the upbeat GDP report. Against a basket of currencies, the dollar was a fraction softer at 97.970, having eased from a near two-year peak of 98.330.
On Monday, the dollar was parked at 111.60 yen, having briefly touched its highest this year last week around 112.39. Chart support comes in at 111.37 and 110.83.
The euro was a shade firmer at $1.1157, but still not far from a near two-year trough of $1.1110.
•The EUR/USD pair fell to its lowest in almost two years this week, as investors opted for buying the greenback on the back of political tensions and macroeconomic weakness elsewhere.
The upcoming week will be a recharged one, in terms of macroeconomic releases, with a Federal Reserve monetary policy meeting outstanding next Wednesday. Ahead of the even the US will release Personal Income and Personal Spending figures for February and March, including PCE inflation, central bankers' favorite inflation measure. By the end of the week, the US will release the April Nonfarm Payroll report, with the country seen adding 180K new jobs and continued wages' growth pressure.
The EU will release preliminary Q1 GDP next Tuesday, seen posting a modest 0.3% advance, and preliminary April inflation. Markit will release the final versions of April PMI for both economies.
•The FXStreet Forecast Poll confirms that a test of the 1.1000 level is on the table for the upcoming week. The survey shows that bears are up to 79% short-term, with an average target of 1.1065. However, and as it was mentioned in previous updates, the market is not ready to break the 1.1000 critical psychological support.
The Overview chart is a clearer reflection of the market's sentiment, with a strongly bearish MA short-term that sees the pair closer to 1.0900 than to 1.1000, and a wide spread of possible targets in the quarterly view, which suggest that market players can't make up their minds on whether the pair will be able or not to break lower. The limited upward potential in this last timeframe skews the risk to the downside.
•USD/JPY is defending 200-day moving average near 111.50 for the third straight day, The key average could be breached by NY close, as treasury yields may drop on renewed concerns over the US economy.
Technically, the pair has little to offer, holding within familiar levels for a third consecutive week. A failed attempt to break higher, however, increased the chances of a downward move during the upcoming days. In the daily chart, the pair settled below its 20 DMA Thursday and was unable to regain the indicator in the last trading day of the week, now battling with a flat 200 DMA.
Support levels: 111.35 111.05 110.80
Resistance levels: 111.75 112.10 112.40
•Sluggish inflation numbers are persistently overshadowing firmer US growth and teeing up a debate in the Federal Reserve over whether the next move in interest rates may need to be down rather than up.
The US central bank, led by chairman Jay Powell, is likely to keep policy unchanged at 2.25 to 2.5 per cent when it meets on Tuesday and Wednesday. With US activity improving after a shaky start to the year and overseas risks diminishing, many analysts remain confident the Fed will keep rates at their current level for the remainder of the year.
But policymakers including Charles Evans of the Chicago Fed have opened the door to future discussions over whether the central bank may wish to lower rates if inflation disappoints further or growth takes an unexpected turn for the worse. Richard Clarida, the Fed’s vice-chair, this month noted in a CNBC interview that in 1995 and 1998 the central bank had taken out some “insurance cuts” even though a recession was not looming.
•“We’re getting into the final laps,” U.S. Treasury Secretary Steven Mnuchin was quoted by the New York Times as saying, during an interview at the Milken Institute Global Conference.
According to the report, Mnuchin said that while both countries are nearing a deal, negotiations are reaching a stage where either an agreement could happen — or it could end without a deal.
Both Mnuchin and U.S Trade Representative Robert Lighthizer will be in Beijing for talks that start on April 30.
•U.S. negotiators head to China on Tuesday to try to hammer out details to end the two countries’ trade war, including the shape of an enforcement mechanism, the success or failure of which could set the trajectory of ties for years to come.
U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will travel to Beijing for talks beginning on April 30, followed by a visit by Chinese Vice Premier Liu He to Washington for more discussions starting on May 8.
•Slowing global growth and elevated tensions in trade and geopolitics are posing economic challenges for countries in the Middle East, according to the International Monetary Fund’s latest report.
“Global developments are affecting the outlook for this year, namely the slowdown in growth especially on trade, the volatility in the oil price, as well as also the global financing conditions, in additional to a certain number of country specific issues,” Jihad Azour, the IMF’s director of the Middle East and Central Asia, told CNBC on Sunday.
•Poland is unlikely to leave the European Union, even if the ruling eurosceptic Law and Justice (PiS) party wins re-election this year, EU executive head Jean-Claude Juncker said in an interview published on Monday.
In response to a question by the Polish daily, Rzeczpospolitaon on whether there will be a “Polexit” after parliamentary elections in Poland in the autumn, Juncker said: “No.”
“Poland is with us (the European Union) because we have common values,” Juncker said.
•Oil prices fell on Monday, extending a slump from Friday that ended weeks of rallying, after President Donald Trump demanded that producer club OPEC raise output to soften the impact of U.S. sanctions against Iran.
Brent crude futures were at $71.66 per barrel at 0648 GMT, down 49 cents, or 0.7 percent, from their last close.
U.S. West Texas Intermediate (WTI) crude futures were at $62.87 per barrel, down 43 cents, or 0.7 percent, from their previous settlement.
Both benchmarks fell around 3 percent in the previous session.
ANZ bank said on Monday oil prices “took a hit after President Trump indicated he had spoken with Saudi Arabia about reducing the impact of lower Iranian oil exports by increasing flows elsewhere.”
Trump said on Friday he called the Organization of the Petroleum Exporting Countries (OPEC) and told the cartel to lower oil prices.
Reference: Reuters, CNBC , DailyFX, FX Street
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