With U.S. stocks rising sharply today, all of the major currencies traded higher with the exception of the euro, which fell for the first time in 5 trading days. The sell-off was driven by the “minutes” 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 Draghi and ECB member Nowtony 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 towards 1.22, the bottom of its recent range.
The rally in stocks and recovery in USD/JPY 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. Jobless claims increased slightly while imports and exports grew at a slower pace. The University of Michigan’s consumer sentiment index is scheduled for release tomorrow. 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 sterling, which either traded higher or held steady for each of the last 5 trading days. Today’s move took the pair within arms 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 GBP/USD has had a nice run, there’s a lot of resistance between 1.4250 and 1.4300.
The New Zealand dollar extended its gains while the Australian and Canadian dollars consolidated. Stronger credit card spending fueled further gains while weaker consumer inflation expectations in Australia triggered more AUD/NZD selling. Manufacturing PMI numbers are scheduled for release from New Zealand tonight and given the performance of the currency and recent data, investors are looking for another positive report. AUD and NZD traders should also watch China’s trade numbers. A smaller trade surplus could add pressure to AUD/USD, which has quite a bit of resistance between .7785 and .7810. USD/CAD took a brief trip above 1.26 before settling the day below the round number. Although house prices eased according to the most recent reports, oil prices 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 tomorrow 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.