Head of FX Strategy
The US and its allies’ missile attacks on Syria were the headline event over the weekend, with the strong feeling that these were a kind of one-off, “checkbox” attack (red lines were crossed, missiles must be delivered) without any apparent intent to extend the campaign against the Syrian government. But the rhetorical exchanges between Russia and the West are not in the least comforting, nor is China’s weighing in on the matter and siding with Russia, which certainly widens the potential fallout from here. We are meant to expect further sanctions today from the US side against Russian companies dealing with Syria, and the ruble remains on its back foot at the moment.
This issue will not go away now or in the near future.
There should be plenty of focus on sterling this week after its ambitious break below the long-standing range versus the euro last week. Post-Brexit trade negotiations are meant to get underway this week and headlines linked to the process could accelerate (more likely?) or reject the move. As well, a couple of key UK data points are up this week, including the latest CPI data up Wednesday and earnings/employment and retail sales data to follow Thursday.
Elsewhere, we have interesting US data already up today – US March retail sales – and a whole string of voting Federal Reserve speakers out speaking all week, so the US yield curve ought to have more cause for showing a bit of volatility. Finally, the corporate earnings season is swinging into full gear this week after nervous churning in the equity market that has failed to sustain any directional move for more than a day at a time lately.
Chart: USDJPY
USDJPY fizzled into the close on Friday, and the minor reversal keeps the suspense level high on the status of the USDJPY and JPY-cross rally. Risk appetite and volatility in the US yield curve this week will be the likely drivers of the action as we await the Bank of Japan meeting announcement on April 27.
The G-10 rundown
USD – the greenback successfully avoiding drama into the weekly close, as EURUSD managed a seventh weekly close at virtually unchanged levels while USDJPY avoided a strong close and AUDUSD did likewise. Perhaps some more dynamism in the USD outlook this week with so many voting Fed speakers on the loose and US retail sales up today.
EUR – rather surprising that speculators have sustained their long euro positioning despite the collapse in the EU data surprises in the negative direction and the unwinding of the European Central Bank rate hike anticipation. But the euro has been going neither up nor down recently, passive to the moves in other currencies and we’re not sure what will spark more volatility. Most interesting data point this week from the EU is tomorrow’s ZEW survey’s expectations component, which has a strong history as a leading indicator.
JPY – the USDJPY breakout on Friday above the noted 107.50 area resistance fizzled so USDJPY outlook remains wobbly, as does the outlook for all JPY crosses – we suspect that the JPY eventually rallies, but from here or after a bit more consolidation?
GBP – as we stress above, the sterling outlook is pivotal after the big technical break, and we should get a stronger sense after the data this week and the Brexit negotiation headlines, as well as whether the Bank of England is more likely to hike in May.
CHF – we passed along the discussion on whether Russian sanctions risked a feed through into the Swiss franc and the first direct evidence of this may be uncovered with the latest Swiss National Bank weekly sight deposit levels up today. After falling a bit into year-end, the sight deposit levels have been mostly unchanged, so a new dynamism in levels could energise CHF traders.
AUD – we are highly contrarian to much additional AUD strength, and the shooting star reversal in AUDUSD and AUDJPY after an apparent squeeze on weak AUD shorts on Friday is the first bearish technical hook in a while. The data focus this week Down Under is on Thursday’s Australian jobs report.
CAD – USDCAD suddenly stable after a fairly brutal run lower, with rallies all failing within a handful of pips of the 200-day moving average as we await the pivotal Bank of Canada meeting on Wednesday. The chart is full of contradictions while the fundamental backdrop (rate outlook from the Bank of Canada based on strong data and strong oil prices), so we’ll watch what unfolds – resistance/pivot to upside is the 1.2800 area and the downside less well-defined, perhaps the round 1.2500 and then the rising trendline a bit lower.
NZD – important data up this week with the latest CPI report on Thursday, which will provide the next status check on the currency, especially vis-à-vis the range top in NZDUSD and whether AUDNZD can continue to grind lower to the next long-standing range supports.
SEK – an odd overextension late Friday in EURSEK that looks suspiciously like a squeeze and has been unwound partially overnight. The steep extension of a trend is often a hallmark of a trend that is ending, but we’ll wait for a reversal before calling one – in this case, EURSEK would have to work back below 10.35-30 to begin to suggest that the krona is ready to put up a fight.
NOK – EURNOK remains embedded in the range, rather disappointing given the oil rally – NOK bulls need a fresh 9.50 break to get something going and 9.70-ish is the range resistance.
Upcoming Economic Calendar Highlights (all times GMT)
• 1200 – Poland Mar. CPI
• 1230 – US Apr. Empire Manufacturing
• 1230 – US Mar. Retail Sales
• 1400 – US Apr. NAHB Housing Market Survey
• 1600 – US Fed’s Kaplan (non-Voter) to speak
• 1600 – US Fed’s Kashkari (non-Voter) to speak
• 1715 – US Fed’s Bostic (Voter) to speak
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
