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Global markets are in an ebullient mood this morning, with bourses soaring across the planet. Over the trading cycle, improving jobless claims data helped to ease investor concern about the American economy, weaker inflation data from China supported expectations of further stimulus, and news that Greece had made a critical loan repayment acted to lift European shares.

The German DAX is at record heights, the Nikkei is trading above the 20,000 mark for the first time in more than 15 years, and Shanghai shares continue to defy economic logic as they surge higher.

In the foreign exchange markets, a reversal is underway. As suggested earlier in the week, greenback bulls have taken advantage of short-term weakness engendered by weaker employment numbers and relatively dovish Federal Reserve minutes to build dollar positions.

Although expectations for a hike have moved into the latter half of the year, the interest rate differential between American and German 10-year government bonds has blown out to more than 1.75%, putting ample momentum behind the unit’s push toward parity with the euro. With the common currency rapidly becoming a funding source for the carry trade, few real technical barriers now stand in the way of a move lower. Last month’s multi-year low around 1.0450 has emerged as a clear target for currency traders.

Here in Canada, the currency is trading slightly higher after the statistics agency released employment numbers that are good from far, but far from good. The headline number looks positive, with 28,200 jobs generated in March. The data below that level looks far less attractive however, given that 56,800 part-time roles were created, while 28,000 full-time were destroyed – meaning that the move higher could be extremely short-lived.

Going into this morning’s report, short positions were heavily stacked against the Canadian dollar, with many players betting that a soft number would compel the country’s central bank to cut rates at its meeting next week. Now that some of those shorts have been squeezed out, the exchange rate baton has passed to Stephen Poloz, with currency traders preparing for sharp exchange rate swings around Wednesday morning’s announcement.

Given the fact that many speculators were badly burnt earlier this week when the Reserve Bank of Australia failed to cut rates, we would remind participants that when it comes to central banks, nothing is foreordained. Tread cautiously, and have a great weekend!

In this  week’s podcast, we  discuss:  USDown or greenback comeback? And also touch other topics:

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