The Week Ahead: The Beat Goes On

There has been an economic narrative that has been driving the markets since the beginning of the year and there is no reason to expect that to change in the coming week.
Foreign Exchange: The Week Ahead
The Beat Goes On
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
There has been an economic narrative that has been driving the markets since the beginning of the year and there is no reason to expect that to change in the coming week. That narrative’s driving force has been that many key G7, G10 and emerging market central banks have backpedaled away from a tightening bias late last year to either neutral or to a dovish bias in Q1. Weak economic data or continued benign inflation have provided the cover for a shift in monetary policy. Three more central banks are expected to cut interest rates in the upcoming week.
This narrative has kept U.S. and global interest rates suppressed and allowed for U.S. and global equities to continue to outperform as low interest rates continue to provide the fuel for equity outperformance. With the Fed now on hold for the foreseeable future, the U.S. dollar (DXY) has generally outperformed primarily against the EZ countries and a few emerging market countries like Argentina and Turkey.
At this time, this narrative and dynamic should continue in the short to medium term. But market participants, investors, and traders will continue to be hypersensitive to any economic data that can roil this goldilocks mix. In regards to the U.S. economy and economic data, any deviation regarding inflation data or growth expectations that could impact Fed monetary policy could set off a chain reaction across all asset classes. For this week, there does not appear anything on the horizon to change these dynamics. 


5/6 Australia Expectations for a rate cut from 1.50% to 1.25%
5/7 Malaysia Expectations for a rate cut from 3.25%b to 3.00%
5/7 New Zealand Expectations for a rate cut from 1.75% to 1.50%
5/8 Thailand Expectations for rates to remain unchanged at 1.75%
5/8  Brazil Expectations for rates to remain unchanged at 6.50%


United States and Canada

5/9 PPI Expectations for a gain of 0.2%; YoY rises to 2.3%
5/9 Trade Balance Expectations for an increase in the deficit
5/10 CPI Expectations for a gain of 0.4%; YoY rises to 2.1%
5/9 Canada Trade Data Expectations for a smaller trade deficit
5/10 Canada Jobs Report Expectation for a small gain in jobs; UR remains at 5.8%


5/6 German Factory Ords. Expectations for a gain of 1.5% following a -4.2% print
5/7 German Indust. Prod. Expectations for a decline of 0.5% after a 0.7% gain
5/10 U.K. Q1 GDP Expectations for a gain of 0.5% following a 0.2% gain
5/10 U.K. Indust. Prod. Expectations for a gain of 0.1% after a 0.6% gain
5/10 U.K. Trade Balance Expectations for slightly smaller deficit

Asia/China and Australia

5/8 China Trade Balance Expectations for another large trade surplus
5/8 Chinese Inflation Expectations for CPI and PPI to remain unchanged
5/6 Australia Expectations for a slightly smaller trade surplus



Ever since the start of 2019, the EUR along with many other European currencies has remained weak as growth differentials between the U.S. and EZ continue. Price action for the EUR remains within a narrow channel with tops near 1.1350 and a bottom near 1.1075.  Within the downward bias, short term trends continue to alternate between a bullish and bearish bias lasting a few days to a week or so. Expect more of the same this week.


Markets continue to remain modestly constructive and optimistic for a Brexit deal as the deadline has been extended to October 31st.  The GBP has appreciated against the U.S. dollar this year by 3.25% and has also gained against the EUR. Confidence and expectations continue to support the GBP in the near term. 


The JPY has become a non-event for the market as it is trapped by numerous forces within very narrow ranges. Softer U.S. interest rates continue to provide a positive backdrop for the JPY. The Golden Week Holiday in Japan has come to an end and perhaps a return to more normal volatility will be at hand but generally expect more narrow ranges.


RBC, our mothership, had forecast a range for the CAD for Q1 of 1.3600/$ to 1.3100$ but that range is holding up well as we move deeper into Q2. Multiple forces are at play with the Bank of Canada abandoning a further tightening bias offset by higher oil and energy prices. Expect more range trading this week.


In Q4, Chinese government and central bank used all monetary and fiscal means possible to keep the economy liquid and afloat and the CNH responded positively. Over the past few months, the CNH has been flat-lining as the Chinese authorities have indicated a pause in their stimulus measures. Continued positive expectations surrounding a successful conclusion to the U.S. – China continue to help sentiment overall. Expect more sideways trading until more news is known about the trade negotiations.


The AUD has remained within narrow ranges despite weak economic data and the RBA shifting to a dovish bias. There is near a 40% probability of an interest rate cut on May 7th. Rising energy and commodity prices have helped to provide a prop in the short term. The RBA meeting will be a key determinant for the near direction.
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