Consumer Price data for March was reported +0.6%, better
than the +0.5% estimate and outpacing February’s +0.4%. Combine this with last
week’s Producer Prices release at +1.0% and it appears inflation is beginning
to make its long-awaited debut.
The dollar weakened following the CPI data since the modest
+0.2% monthly gain will likely keep Fed policy on hold. The U.S. dollar index was
trading +0.20% prior to the CPI release but is now -0.24% for the day. News
that the FDA & CDC had jointly suspended the Johnson & Johnson covid-19
vaccine had been weighing on the dollar earlier in today’s session.
The impact of the CPI data on the USD/CAD & USD/MXN was pronounced,
the Canadian dollar gaining 0.67% and Mexican peso gaining 0.89% following the
release. Support at 20.0500 (long-term trendline) is preventing further peso gains.
Treasury yields have slumped in lock step-with the lower
dollar. The benchmark 10-Year Treasury yield is lower by 0.041 basis points to
1.6278%, approaching support at 1.6000%. Gold is higher by 0.80% but remains rangebound
between $1,758 and $1,676 since late February.
Bitcoin reached a new all-time high today at $63,753. Today’s
high marks the 7th weekly record for 2021. A total of 18.6 million
bitcoins have been mined of the total possible 21 million, or 89%.
The U.S dollar index is about unchanged since last Thursday’s
close with support at 92.000 preventing further dollar declines. The dollar is
mixed today in narrow trading ranges vs. the G10 currencies: +0.39% vs. SEK,
+0.22% vs. CAD, and -0.26% vs. GBP, -0.23% vs. JPY, -0.16% vs. NOK. Emerging
market currencies have gained on the dollar: BRL +0.72%, MXN +0.31%, and ZAR
+0.21%.
Although currencies have been quiet for last few days the dollar
index is -1.25% for April, with the primary dollar declines -2.12% vs. CHF, -1.87%
vs. SEK, -1.66% vs. MXN, and -1.48% vs DKK and EUR. Dollar returns have generally
followed treasury yields lower with the key U.S. 10-Year yield down 6.2bps
since the March close at 1.742%.
The USD/MXN has reached support at 20.0500, a true textbook
retracement to trendline support in place since the week ending February 19th.
Now we wait to see if peso bulls have the appetite to break support and make a
run at 20.0000 and test next support at 19.8500.
USD/CAD continues to trade inside a 1.2625-1.2500 4-week range.
Despite the recent stall the monthly and weekly charts continue to point to a
lower USD/CAD. A weekly close above 1.2650 is needed to signal a trend
reversal.
There are several key economic releases later this week. The
earliest report is tomorrow’s Monthly CPI, a key inflation reading which is forecast
+0.5% for March. Later reports include Retail Sales, Empire Manufacturing,
Philadelphia Fed Business Outlook, and Industrial Production.
The U.S. dollar index is unchanged today vs. yesterday’s
close with the dollar gaining vs. the JPY, CAD, and GBP but weakening against
the EUR, CHF, and SEK. Aside from the index currencies the dollar is generally
higher overnight: +0.61% vs. AUD, +0.47% vs. NZD, and +0.18% vs. MXN.
USD/CAD has reversed course since Monday’s decline with the greenback
gaining 0.73% over two days. The Canadian dollar is under renewed pressure in
part due to Ontario’s announcement of another 4-week stay-at-home order
starting Thursday. Next resistance is at 1.2650 and higher at 1.2740 (100-day
moving average).
Long-term Treasury yields are holding onto slim gains ahead
of today’s release of the minutes from the FOMC’s March meeting. The 10-year
yield is up 0.2 basis points, 15-year +0.4 basis points, and the 30-year +0.6
basis points. The meeting minutes are set for release at 2pm ET.
Mortgage Applications data for the period ending April 2nd
reported today were -5.1%. Higher yields and the associated higher cost of borrowing
are beginning to put the cost of home ownership out of reach for some.
The S&P 500 Index set new consecutive record highs on
Monday and Tuesday, trading above 4000 for the first time and closing at
4,077.91 yesterday.
The U.S. dollar index peaked last Wednesday at a high of
93.437, capping a two-week surge of 2.18%. The dollar index has since given
back 0.95% of those gains, including a 0.50% drop today.
The dollar is mixed vs. the G10 currencies; -0.33% vs. the
SEK, -0.25% vs. JPY, and -0.14% vs. CHF, DKK, and EUR. And +0.43% vs. GBP,
+0.31% vs. NZD, +0.30% vs. CAD, +0.28% vs. NOK, and +0.20% vs. AUD.
Treasury yields are lower with the benchmark 10-Year yield below
1.700% once again. Another wave of Covid infections has once again dampened the
crowded recovery trade, pressuring yields and leading to a 6.2% decline in oil
yesterday.
The dollar continues to decline vs. Mexican peso with the USDMXN
-0.52% today, reaching its lowest level since mid-February. Textbook support at
20.0500 is within easy reach now.
The U.S. dollar index is higher today by 0.35%, trading
above 93.000 for the first time since November of last year. The dollar has
gained in eight of the last nine trading days, continuing the weekly trend
higher which is now in its 9th week. Next resistance is at 94.500 (+1.34%
from the current level) and then 96.125 (+3.09% from current).
The dollar is higher against all the G10 currencies with the
widest gains vs. the safe-haven CHF (+0.45%) and JPY (+0.41%). Other gains are
+0.34% vs. AUD, +0.33% vs. EUR, and +0.29% against the GBP & CAD.
Outside of the G10 currencies the dollar has declined vs. a
basket of emerging market currencies: -0.64% vs. BRL, -0.23% vs. MXN, -0.11%
vs. TWD, and -0.10% vs. ZAR.
Lower safe-havens and higher emerging markets signal a
revival in ‘risk-on’ positions. Anticipation for a global economic recovery from
Covid-19 is once again driving decisions about strategic investments.
The 10-Year Treasury yield has moved higher over the last
four trading days after closing at 1.601 last Wednesday. Higher yields provide
more incentive to own dollars as the cost of borrowing increases.
Consumer Confidence for March was reported at 109.70,
beating the 96.7 estimate.
The U.S. dollar index is higher today by a slim 0.15%.
Currencies traded in narrow ranges overnight with the dollar +0.38% vs. JPY, +0.29%
vs. SEK, and lesser gains vs. NOK, DKK, EUR, CAD, CHF, and NZD. The dollar’s
G10 losses are -0.12% vs. GBP and -0.04% vs. AUD. The dollar is lower against key
emerging market currencies: -0.48% vs. RUB, -0.35% vs. ZAR, and -0.31% vs. MXN.
Weekly Jobless Claims for the week ending March 20th
were 684k, better than the 730k estimate, and the first time claims have been
below 700k since the Covid-19 outbreak a year ago. Continuing Claims for
the period ending March 13th were 3.870mio vs. the 4.0mio estimate. More
welcome economic news is in today’s 4th quarter GDP figures,
reported at +4.3% vs. a +4.1% estimate.
USD/MXN: the peso is higher today after YoY Retail Sales for
January were reported at -7.6%, better than the -8.1% estimate. Monthly Retail
Sales were +0.1%, a nice surprise to the upside vs. the -1.2% estimate. The
Bank of Mexico announces overnight rate policy today at 3pm ET. No change is expected
from the current 4%.
EUR/USD traded below 1.1800 today for the first time since last
November.
GBP/USD: previous support at 1.3800 is now resistance after
breaking below that level on Tuesday.
Treasury Yields continue to retreat with the U.S. 10-Year
yield now at 1.594%, some distance from the 1.753% high last Thursday.
Volatility in crude oil markets continues with prices -3.22%
today. Over the last week oil has seen daily swings of -7.12%, -6.16%, and +5.92%.
Overnight the dollar gained against 7 of the 10 G10 currencies.
The widest gains were +0.30% vs. the NZD & GBP, and smaller gains vs. the
CHF, DKK, EUR, JPY, and AUD.
The dollar declined -0.62% vs. the NOK, -0.04% vs. SEK &
CAD. Oil prices have rallied today by 2.58%, offsetting some of yesterday’s -6.16%
drop and lifting the commodity currencies in the process.
Emerging market currencies are higher today: MXN +0.51%, ZAR
+0.46%, and BRL +0.05%.
USD/MXN continues to trade between its recent 5-week ranges
(21.6310 high, 20.2750 low) at 20.7000.
USD/CAD is essentially unchanged today but is higher by 0.75%
for the week. USD/CAD is trading in a long-term downtrend with trendline resistance
at 1.2750.
The AUD/USD was -1.58% yesterday and traded below 0.7600 in
trading today. Support at the 100-day moving average is limiting additional AUD
losses for now.
Durable Goods Orders for February were -1.1%, compared
to the +0.5% estimate. Missing the estimate is one thing but getting the
direction wrong on major economic data releases hints at entrenched underlying
weakness. MBA Mortgage Applications through the week ending Mar 19 were
-2.5% vs. -2.2% previous.
The U.S. dollar is trading at its highest level in two weeks
as market participants shift to safe assets. Germany’s overnight announcement
of an Easter ‘hard’ lockdown and a four-week extension of existing lockdowns was
a surprise for investors who had amassed post-Covid positions. Talk of a ‘third-wave’
Covid outbreak tied to fast-spreading mutations of the virus highlights the
peril of discounting Covid-19 too soon.
The U.S. dollar index traded to a high of 92.185 as it distances
itself from support near 91.000.
USD/CAD is +0.39%, the 4th daily consecutive gain
for the USD. Last week’s multi-year low at 1.2361 is now key support.
USD/MXN is +0.53% but trading within recent ranges,
resistance at 20.8500 and support at 20.3000.
NZD/USD is -1.86%, today’s biggest loss vs. the USD. New
Zealand’s government announced that it would remove tax incentives for real estate
investors in an effort to open up more affordable housing (and prevent a
housing bubble). Support at 0.7000 (low from late December) should provide initial
support. Major support is seen at 0.6800.
Today Fed Chairman Powell and Treasury Secretary Yellen
begin two days of hearings before Congress. Questions will likely center on
inflation, employment, and the ballooning deficit in light of the $1.9 trillion
‘pandemic relief’ package recently passed (and another $3 trillion package now
being discussed).
Currencies traded in narrow ranges overnight and are little
changed from yesterday’s closing levels. The U.S. dollar scored minor gains vs.
all the G10 pairs, with the widest advances vs. the commodity currencies again,
in a repeat of yesterday where slumping oil prices weighed on oil-exposed economies.
Dollar gains today: +0.79% vs. NOK, +0.58% vs. SEK, +0.38%
vs. GBP, +0.34% vs. AUD, +0.33% vs. CHF, +0.26% vs. CAD, and sub-0.25% gains
vs. DKK, EUR, NZD, and JPY.
The one area of dollar weakness is vs. emerging market
currencies with the Mexican peso leading all gains today, +0.83%. The U.S.
announced it was sending 2.7mio Covid-19 vaccine doses to Mexico to help
augment the 4.74mio doses already administered. Peso strength and weaker oil
normally don’t mix, but for new Covid relief can make an exception.
Oil prices were down 9.91% at one point yesterday at 58.20
but managed to close at 60.00 for a loss on the day of 7.12%. Oil markets are notoriously
volatile, but yesterday’s rout was one of the bigger historic moves. Renewed
Covid-19 lockdowns in Europe have suddenly dampened market expectations for a
near-term economic rebound, driving oil bulls to the sidelines.
Long-term treasury yields (20-, 25-, 30-year) are lower, and
the 2-15 year yields just turned higher.
Where do we go from here? Now that the $1.9 trillion Covid
relief bill has been signed, the Fed has made its rate policy through 2023 clear,
and vaccinations are generally available, what is left to guide trading
decisions going forward? The big pieces are in place, so now we get the
recovery, right? Hopefully it will be that simple.
*The arrows indicate how the base currency performed against the counter currency overnight. This document is for information purposes only and does not constitute any recommendation or solicitation to any person to enter into any transaction or adopt any trading strategy, nor does it constitute any prediction of likely future movements in exchange rates or prices or any representation that any such future movements will not exceed those shown on any illustration. All exchange rates and figures appearing are for illustrative purposes only. You are advised to make your own independent judgment with respect to any matter contained herein.