Overview: The greenback remains under pressure and fell to new lows for the move against the euro, sterling, and the Norwegian krone. It is softer against nearly all the G10 currencies but the Japanese yen, where more disappointing data were reported and polls showed support for Prime Minister Ishiba plunged following his admission of doling out JPY100k (~$672) to 15 first-term LDP members of parliament. It makes for a poor backdrop for the upper house election in July. Most emerging market currencies are trading firmer.
Encouraged by the recovery in US equity indices yesterday, Asia Pacific equities have rallied. A new rapid charge system was unveiled by BYD for electric vehicles and this help lift the index of mainland shares that trade in Hong Kong by almost 2.8%. The index is up nearly 26% here in Q1. In addition to Hong Kong, Japanese, Indian and Malaysia indices rose by more than 1%. Europe's Stoxx 600 is up about 0.75% through late morning turnover. If sustained, it would be the third consecutive advance, its longest streak in a little more than a month. US index futures are little changed but softer. Meanwhile, ahead of the German vote today that seems mostly procedural after the political agreement was struck last week on the new fiscal initiatives, European benchmark 10-year yields are mostly 2-3 bp firmer. The 10-year US Treasury yield is up almost two basis points to approach 4.32%. The month's high was set last week near 4.35%. Gold is extending its rally and reached a new record high near $3028.50 today. Last week's low was near $2880. With Israel stepping up its strikes and the US hitting the Houthis, May WTI is up over $1 a barrel today and is above its 20-day moving average (~$68.15) for the first time in nearly a month.
USD: The Dollar Index is testing the 103.20 area low seen last week, its last week, its lowest level since mid-October 2024. The momentum indicators are stretched, but the Dollar Index must settle above 104.00 to signal that the downside pressure has subsided. The greenback seems to come under the most pressure in Europe, which is consistent anecdotal reports that suggest after buying records amount of US equities last year, are unwinding this year--selling US equities and the dollar. A break of 103.00 leaves little on the charts ahead of 102.00. Today, before tomorrow's conclusion of the FOMC meeting, the US reports housing starts and permits and industrial output. These real sector reports may help to ease fears that the economy is contracting now, though the risks of a recession are growing. Meanwhile, import and export prices slipped last month, according to the median forecast in Bloomberg's survey.
EURO: The euro has not traded below $1.08 since March 7 and today has made a marginal new five-month high today (~$1.0955). The next target is around $1.10. The German political compromise was struck last week, setting the stage for today's vote on the new fiscal efforts. It is lifting investors and consumer sentiment. To be fair, sentiment in Germany was improving before the election and fiscal initiative. The ZEW survey showed an improvement in the current assessment began in January, and we learned today, it continued to heal in March. It stands at -87.6 (-88.5 in February), its best level since last October. The expectations component bottomed last year in September (3.6), but with the March jump to 51.6 (from 26.0), it is the first back-to-back gain since last May-June and is the highest since last February 2022 (Russia's invasion of Ukraine).
CNY: The dollar is pinned near last week's low against the offshore yuan a little above CNH7.2150. It has frayed the 200-day moving average (~CNH7.2215) while holding below its 20-day moving average (~CNH7.2550). The dollar has been trading between those moving averages against the onshore yuan. They are found near CNY7.2175 and CNY7.2335, respectively. After setting the dollar's reference rate at CNY7.1688, its lowest since the day after the US election last November, the PBOC set it at CNY7.1733 today (CNY7.1738 last Friday). China sets the loan prime rates, and the one-year medium-term lending facility rate this week. No change in rates is expected. Meanwhile, Beijing does not like the $19 bln, 43-ports deal by Hong Kong's CK Hutchinson to Blackrock that includes the ports on both sides of the Panama Canal. It is not clear if it will deny regulatory approval.
JPY: The US dollar is approaching JPY150, which it has not traded above for nearly two weeks. The low set last Monday was a five-and-a-half month low near JPY146.55. The greenback settled above its 20-day moving average (~JPY149.20) yesterday for the first time since mid-January. The JPY150 level is not just psychological resistance as round numbers often are, but options for nearly $1.5 bln expire there today. Japan reported a 0.3% decline in the tertiary industry index (services) after a revised 0.4% gain (initially 0.1%) in December. Recall that industrial output fell 1.1% in January, third consecutive monthly decline. The median forecast in Bloomberg's survey sees the economy expanding by 0.4% at an annualized rate this quarter after a 2.2% expansion in Q4 24. The BOJ's meeting concludes tomorrow and there is practically no chance of a change in policy. A hike at the May meeting seems unlikely. The swaps market has about a 50% chance of a hike in June.
GBP: Sterling was stopped as close to $1.30 yesterday as possible but rose slightly through it in early European turnover, without triggered much in the way of stops. It has not traded above there since November 7. The band of resistance extends toward $1.3050. Still, the push to new highs came quickly and was swiftly rejected, leaving a possible bearish divergence in the intraday momentum indicators. Initial support is seen in the $1.2960-70 area. The UK economic calendar is light until Thursday's labor market report and the Bank of England meeting. Wage growth is expected to stabilize, and the unemployment rate is seen steady at 4.4%. The BOE is most likely to stand pat this week, but the swaps market has a little more than a 75% chance of a cut in May.
CAD: The US dollar fell through last week's low to almost CAD1.4275 yesterday. It settled below the 20-day moving average (~CAD1.4345) for the first time in three weeks. It has made a marginal new low today, and the next chart support is seen around the month's low near CAD1.4240. Last month's low was about CAD1.4150. Canada reports February CPI today. The tax holiday ended in mid-February, and this will likely translate into a tick up in inflation. Higher gasoline prices will also lift the headline pace. The median forecast in Bloomberg's survey sees a 0.6% increase, which given the base effect, the year-over-year rate will rise to 2.2% from 1.9%. The underlying core CPI measures are likely to remain mostly steady. The swaps market has a little less than 40% chance of a cut next month and more than an 85% chance of a cut in June.
AUD: The Australian dollar rose to $0.6390 yesterday to make a new high for the month, and has held it today, according to Bloomberg. It is consolidating so far today and options for A$1.1 bln at $0.6400-10 expire Thursday. The key to the upside is the Q1 high set in February 21 around $0.6410. Recall that the $0.6415 area corresponds to the (38.2%) retracement of the decline from high late last September (~$0.6940). The week's highlight is the February employment data on Thursday. Australia's Treasurer Chalmers delivers a formal speech next week (March 25), but he warned that "Cyclone Alfred" could cost as much as 0.25% on the quarterly GDP--having lost about 12 mln work hours and spurred 44k insurance claims.
MXN: The peso consolidated yesterday after rising by about 3% in the first two weeks of March. It reached its best level since US election last November. A dollar break of MXN19.85 could set up a test on the MXN19.76 area. The 200-day moving average is around MXN19.69 and the greenback has not closed below it since early June 2024. While Mexico still appears on track to deliver a 50 bp rate cut next week, Brazil's central bank has pre-committed to another 100 bp hike this week, which would bring the Selic Rate to 14.25%. News of a strong 0.89% rise in the January's economic activity index yesterday, the strongest since last June, saw the dollar fall to around BRL5.6660. That is its lowest level since last November, and through its 200-day moving average (BRL5.7030) for the first time since February 2024. Chile's central bank meets at the end of the week. It slashed policy rate by 325 bp last year to 5%. It may have completed its easing cycle or nearly so. February's CPI stood at 4.7%. The central bank forecasts a 4.3% rate this year. The dollar is at its lowest level against the Chilean peso since last October. Meanwhile, the correlation between changes in copper prices and changes in the Chilean peso's exchange rate is near 0.30, about half of what it was in Q4 24.
