FX Market View #8

The US Dollar settled in for a challenging week, unable to build any gains or forward momentum instead consolidating lower against the majors. A similar currency market situation prevailed in the previous week, as investor lacked the belief and desire to buy Dollars on the back of a surging domestic economy. As a consequence the near term outlook for the greenback is still uncertain. The equity markets in the US and Europe have softened, however on the positive side economic growth in both regions have not peaked. Economic growth expectations will accelerate as we head into the third quarter of the year, aided by the fiscal policies being put into place now.

Looking into the week ahead the global macro picture will receive multi inputs and perspective to digest. Meetings from the Bank of Japan and Federal Reserve are the key highlights. Data will be released from the US and the Eurozone economies with GDP estimates for the first quarter of the year. Should economic growth continue to accelerate, the central banks will have the additional pressures of needing the implement rate hikes. Therefore the market will become sceptical whether interest rate adjustments can be held off for many years. Consequently, the release of the eurozone estimate of the April inflation figures will be closely monitored.

The week’s key data release begins with the US durable goods orders. Continual economic growth is expected in the US and the data should reflect this, so any market reaction would only be exhibited if weak numbers are released. On Wednesday the FED will release a statement on their monetary policy. Since rate hikes are not expected for the next 2 years then market will be assessing the rhetoric on the asset purchasing program. Later in the week, unemployment data in the US and Germany will be announced which is expected to support the theme of a global recovery in the markets. Additionally the Eurozone CPI report should also indicate continued economic growth.

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