Fundamentals along with data to move the markets

Leaving behind us an interesting week, which had a number of surprises instore for the markets, we take a look at what the coming week may have up its sleeve. On the monetary front we highlight RBNZ’s interest rate decision, albeit also Turkey’s CBRT interest rate decision could also gather some interest, As for financial releases, we note on Tuesday China’s trade data for March, UK’s GDP rates for February, Germany’s ZEW indicators for April and the US CPI rates for March, while on Thursday we get Australia’s employment data for March and on Friday, China’s GDP rate for Q1 2021, among a plethora of financial releases. On the other hand, fundamentals may take the lead, with the pace of the recovery of the US economy, UK’s vaccination progress and EU’s lack of vaccination progress being among the headlines.

USD – Inflation data eyed

The greenback seems poised to end the week lower against a number of its counterparts, in one of the worst weeks of the year. In the US lots of ink has been spilled over possible inflationary pressures due to the fiscal stimuluses of the US government as well as the loose monetary policy of the Fed. Despite the Fed Chairman downplaying inflationary risks for the US economy in recent statements, market participants seem to continue to worry. Hence the release of the US CPI rates for March on Tuesday could generate substantial interest among traders. At the same time, we would not underestimate also the release of the US retail sales growth rate for March on Thursday and the University of Michigan preliminary consumer sentiment for April on Friday for the consumer side of economic growth. On the production side we would note on Thursday the release of the NY Fed Manufacturing index as well as the Philly Fed Business index for April and the industrial production growth rate for March, while for the US employment market we get the weekly initial jobless claims figure on Thursday. On the monetary front the Fed’s dovishness seems to be ongoing despite the faster than expected pace of recovery, as expressed in the Fed’s last meeting minutes and by policymaker’s statements. It’s characteristic that St. Louis Fed President Bullard was reported saying that the Fed should not even discuss changes until it is clear the pandemic is over. We see the case for a well balanced coming week given the level of impact and number of financial releases as well as the fundamentals surrounding the USD, which may also affect the US equities markets as well as gold prices. On the other hand, we must not underestimate the overall effect which is being played out by the US yields as in the recent past in some cases, they have played a key role regarding the direction of the markets.

GBP – GDP rates eyed

We end the week with the sad announcement of Queen Elizabeth’s husband Philip having passed away and the effect on the markets probably will not be positive. Nevertheless, the pound seems to be rather stable against the USD albeit some slight bearish tendencies seem also to be present. On the vaccination front, the situation seems to improve, given that some analysts estimate that the UK may reach “herd immunity” levels either by vaccination or otherwise within the coming week. Also, the fundamentals seem to be promising given the easing of lockdown measures in the UK. On the monetary front despite some cautiousness, the bank seems to remain rather stable and we see the case for the UK economic outlook being in the positives. As for financial releases next week we would highlight Tuesday the 13th of April as a key date as we get UK’s GDP rates, Manufacturing output growth rate and Trade balance figure all for February.

JPY – Safe haven flows continue to be the main driver

JPY showed some decisive strengthening against the USD this week, maybe the most in a week since the start of the year. On the fundamental side, news that Tokyo is also to be set under a semi-emergency state for a month, due to the spread of the pandemic, were not helpful. The incident adds further weight to the fact that Osaka and other three provinces were also set under similar lockdown measures last week as menioned in our prior report. Hence worries for the Tokyo Olympics tend to also be on the rise, given the weight placed also on their economic effects for the country and the possibility of another wave of the pandemic for Japan. In Japanese politics the meeting between Prime Minister Suga and US President Biden next week, seems to be in the headlines and among the main issues to be discussed seems to be also the situation in North Korea. On the monetary front, the efforts of BoJ for a digital currency seem to intensify, yet at the same time the bank seems to remain adamant regarding its ultra loose policy. Overall though we would continue to expect JPY to be moved primarily by safe haven flows rather than anything else and the importance of the international market’s risk on/ risk off mood is to be pivotal in this matter. As for financial releases we would like to note the release early on Monday morning of the corporation goods prices growth rate for March and the Machinery orders growth rate for February on Wednesday.

EUR – In the grip of the pandemic

Europe is still firm in the grip of the pandemic once again. Characteristically Germany reported the highest number of daily new cases since mid January confirming the worries for a third wave. At the same time Germany’s chancellor Merkel seems to mull the idea of a national mini lockdown, yet the meeting with state leaders to discuss the situation which was scheduled for Monday has been postponed. In general the situation is grave in Europe and any news delaying even further substantial vaccination progress in the continent could weaken the single currency and vice versa. On the monetary front, statements made by ECB Vice President De Guindos that the downside risks have materialised and the Q1 was worse than expected, tended also to confirm the slowdown which characterised economic activity in the first three months of the year. As for financial releases next week we would note Eurozone’s retail sales growth rate for February on Monday, Germany’s ZEW economic indicators for April on Tuesday, Germany’s and France’s final HICP rate for March on Wednesday and Eurozone’s final HICP rate for March on Friday.

AUD – Employment data eyed

The Aussie seems to have maintained a rather sideways motion against the USD with little gains. On the fundamental side the news that Australia has restricted the use of the Astra Zeneca vaccine could possibly slowdown also the recovery of the Australian economy. Australia had reportedly largely based its vaccination program on the particular vaccine. The effective U-Turn of the govenrment practically reduces substantially the chances of vaccinating the population by October. On the monetary front RBA’s decision was to remain on hold at 0.10% as was widely expected, yet the situation is rather perplexed as home values have grown at their fastest rate for 32 years as reported by local media. At the same time the bank stated that it was closely watching the property market and the risk that ultra-low interest rates led to “over-exuberance”. As for financial releases in the coming week we note the release of Australia’s NAB business conditions and confidence for March on Tuesday, while the main release is expected to be Australia’s Employment data for March on Thursday. Also AUD traders are expected to tune in to the release of China’s trade data for March on Tuesday, and on Friday pay attention for the release of China’s industrial production growh rate for March as well as China’s GDP growth rate for Q1.

NZD – RBNZ interest rate decision to move the Kiwi

Similarly to the Aussie the Kiwi also maintained largely a sideways motion against the USD in the past days. The Aussie though has the central bank interest rate decision behind it, while for the Kiwi RBNZ has still to decide. On Wednesday’s Asian session RBNZ is to release its interest rate decision and is widely expected to remain on hold at 0.25% given its forward guidance as well as the fact that for the time being NZD OIS have fully priced in such a scenario materialising. Overall, we still see the case for the bank to maintain a rather dovish tone possibly reiterating the necessity of a prolonged monetary stimulus. The fact that GDP rate declined even more for Q4 than what the bank expected enhances such expectations. So overall we see the risks related to the event for the NZD as tilted to the bearish side. As for financial releases besides the Chinese data we would also note from New Zealand the electronic sales growth rate for March as well as the manufacturing PMI for the same month.

General Comment

Despite some financial releases standing out, we expect that in the coming week a well-balanced blend of financial data along with fundamentals could form the main driver for the markets. Overall though we tend to maintain the view that the USD is to maintain its initiative over the FX market electrifying at some points volatility, especially given the gravity of its fundamentals which could also affect other markets. Should the recovery of the US economy continue to be on a fast pace, we may see US stockmarkets also getting some support, yet at the same time the threat which rising yields may pose especially to the tech sector should not be underestimated. As for gold, we expect it to continue to maintain its negative correlation with the USD, gaining whenever the greenback weakens and vice versa, hence gold traders should keep an eye out for it as well.

If you have any general queries or comments relating to this article please send an email directly to our Research team at research_team@ironfx.com

Disclaimer:

This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.

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