FX Market View #5

The trading week was shortened by the Easter holiday period, with most financial closing on the Friday. However the few exchanges in the Asia Pacific region that remained open did experience market advances. As for the currency markets the US Dollar produced mixed results during the week. Unexpected strengthening in US employment data would normally be a catalyst for gains in the Dollar. However with the US markets closed on the Friday the impact of the positive employment data dissipated. Consequently, the current trading week could see added volatility.

Heading into a new quarter the Dollar is trending from an elevated position. During the first quarter the Dollar appreciated across the board and there are no obvious obstacles to prevent this trend to continue near term. The financial stimulus and vaccine rollout by the US government is building optimism in an economic recovery. Positive employment data has only added to this optimism. Inflation data will be the one factor which may stress-test the growth rate. Therefore the release of CPI data for March early next week will be a near term key reflection point for the currency markets. Once the quarter end adjustments have be realised the Dollar trend will more clearly reveal itself.

Markets are off to the races this week as we begin a new quarter. S&P 500 index futures are pushing past 4,000 on the news of the US infrastructure plan update. So far the US jobs market data has impressed, and given this momentum it is likely that further macroeconomic gains will follow. The major data releases for this week will be centred around the FED minutes from the last policy meeting, and the ECB report on the weekly asset purchases program. Consequently, the direction of the common currency will be directly linked to the pending ECB report. Similarly if the FED appears to discount the rise in Treasury market yields, the Dollar should receive a positive boost.

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