While the residual impacts of the more dovish Fed stance still linger in the system, FX markets have not been calmed by this liquidity sedative. Indeed recent market volatility has shown that uncertainty surrounding factors such as Greece and Crude Oil supply are still impacting markets.
The holiday-affected week ahead should prove no different, with risk aversion impacts mitigating, if not completely offsetting, the possibility of a delayed Fed tightening.
EUR/USD should remain torn between improving Eurozone data relative to the US and fears about a 'Grexident'.
Meanwhile, in the UK, the impact of electoral polls will gain further traction as the second round of televised group debates looms. Recent polling trends suggest that perceived electoral risks from a minority government may have diminished somewhat. Should the next round of polls follow similar leanings the GBP could regain ground, especially against EUR.
In the periphery the focus will be on the difficult policy decision the RBA has to make. Given the current skew in RBA pricing, a weak NFP outcome on Friday could force policymakers’ into a cut next week, whilst a stronger NFP might provide some breathing space. We remain short AUD/NZD.
What we’re watching:
EUR – Greece negotiations. The next IMF payment of EUR450m due on 9 April will likely to keep pressure on Athens to deliver on its promises. One cannot completely rule out the risk of a ‘Grexident’ where the troubled Eurozone member is unable to meet its immediate financial obligations.
USD – Fed Minutes. The March meeting saw the Fed remove ‘patient’ from its statement whilst also lowering its inflation and growth forecasts, as well as its median policy rate projections.
GBP – pre-election polls. Latest polls show that the gap between the two major parties is narrowing, and the collective share of the minor parties is falling, suggests electoral risks may be over-estimated. Polls following the next round of TV debates will be crucial.
AUD – RBA announcement. Policy makers are in a difficult position and may be wary of disappointing the market. Clearly it is a tough call, but a weaker NFP Friday will push the balance of probabilities in favour of a cut. r
