The G-10 rundown
USD – the direction for the USD this week will pivot on whether the Goldilocks trade (Fed slow and steady, US long rates under control, risk appetite in strong recovery) returns.
EUR – the euro could benefit from a return of the Goldilocks trade, though positioning would suggest that it could underperform relative to most other non-USD currencies given the shift of focus on the JPY. As well, the upcoming Italian election this weekend could at least see a bit of underperformance this week, though fears are modest (one-week EURUSD volatility spiked two handles since Friday).
JPY – as we emphasise above, the market may be undergoing a reassessment of the JPY as the “rate spread story” has carried less weight elsewhere, so why not for the yen as well? Unwinding of stale shorts a significant potential driver of strength whether Goldilocks returns or is banished to the woods.
GBP – sterling showing reasonable form and GBPUSD could be set for a significant rally this week after the recent story that the EU parliament may drive an effort to give the UK special access to the single market; 1.4000 is the psychological pivot there.
CHF – EURCHF stuck in a rut, perhaps as traders waiting to get the March 4 date in the rear-view mirror before making the next bigger directional move. Options volatilities (one-week jumping more than two handles since Friday as this now covers the upcoming weekend) suggest modest anticipation of this weekend’s events (compare with a more than six-handle jump as the first round of the French presidential election came into view).
AUD – AUD pulling back from the abyss versus the US dollar as the market tries to stoke the Goldilocks trade. The AUDUSD rally could be the first one to fade if markets don’t get what they want this week, and could be a star performer if they do.
CAD – as discussed above, the higher than expected CPI print on Friday, Goldilocks’ attempted return, and higher oil prices are conspiring to stuff USDCAD back into range and more downside awaits if the USD comeback wilts further this week.
NZD – NZDUSD never looked in much danger during the recent USD bounce, and a return above 0.7400 could encourage a fresh charge at the multi-year highs. The January Trade Balance report is up this evening.
SEK – EURSEK above 10.00 looks out of place if risk appetite continues to improve, even if we did see a dovish set of Riksbank minutes on Friday.
NOK – EURNOK should be primed for a test of lower support this week if risk appetite continues to improve as the Euro may be on hold until the other side of elections and the strong rally in oil provides a strong supportive backdrop.
Upcoming Economic Calendar Highlights (all times GMT)
• 1000 – ECB’s Coeure to Speak
• 1300 – US Fed’s Bullard (Non-voter) to Speak
• 1400 – ECB’s Draghi to Speak
• 1500 – US Jan. New Home Sales
• 2015 – US Fed’s Quarles (Voter) to speak
• 2145 – New Zealand Jan. Trade Balance