Finding a base for the dollar

EUR: Confidence data of modest interest for the single currency, but economic confidence tailed off last month after a more positive period into year end and up to February this year. The debate is now how deep the downturn in overall Eurozone output will be this year. The single currency continues to perform relatively well vs. peers.

USD: The GDP data is the second release, so the risks are less as the market is focused on the potential for revision and further underlying details. Weekly jobless claims are expected to have settled at 340k (same as last week) after recent volatility.

Idea of the Day

The majors have been staging a fight-back against the dollar strength that has been the theme for most of the month.   What is ultimately going to determine whether the dollar can break away and move higher is perceptions on the Fed. More specifically, having been the first into the financial crisis, having cut rates earlier, introduced more ‘non-conventional’ measures and deleveraged harder, the question is whether it’s going to be a case of first, first out for the US central bank.

It has been for the economy, up 3.6% from its pre-crisis peak in output, compared to 3.3% below in the Eurozone, but it’s the labour market that has dragged. Once the recovery there is established and viewed as sustainable, the dollar will have a strong foothold from which to break out of the relatively stable performance of the past few years (certainly in contrast to the bear market of the prior seven years).

Latest FX News

JPY:   The Nikkei having another wobble overnight (down around 5%), although not as major as the one seen last week.   Weekly data showed Japanese investors again net sellers of overseas bonds and were also modest sellers of overseas equities for the second consecutive week.   The yen firmer as a result.

AUD: In contrast to the euro, the Aussie notably weak during Wednesday, both during the Asia session and thereafter when other currencies were staging a backlash against the firmer dollar in which the Aussie trailed in the wake. Today, the Aussie is benefitting from weaker dollar and also stronger than expected building approvals data overnight (up 9.1%), which allowed push close (but not through) the 0.97 level during the Asia session.

EUR: There’s still a decent underlying tone to the single currency, even though this is in the context of a firmer US dollar. Both the Swissie and the yen outpaced during Wednesday, but sterling and the Aussie were left in its wake. With the dollar weaker overnight, the 1.30 level on EURUSD is not that far away.

CAD: Little changed in the aftermath of the statement accompanying the last rate decision from governor Carney. The tightening bias remained in place, with the CAD holding steady around 1.0370.

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