The USD has made a tentative recovery against the EUR and JPY this week, supported by US front-end yields and firmer oil prices.
We see scope for the USD to extend its gains against the EUR in the near term. This is consistent with STEER, signalling that EURUSD short-term fair value is closer to 1.1206 (see chart).
Going forward however, we don’t see scope for a sustained USD recovery, particularly if dovish Fed comments continue to prevent a rebound in Fed tightening expectations. We continue to target 1.16 in EURUSD by mid-year.
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Next week’s calendar of FOMC speeches features the Fed’s Dudley and Kashkari. US data are limited to housing starts and the Philly Fed survey.
The Reserve Bank of Australia (RBA) minutes from its 19 April meeting may shed more light on the recent adjustment to the easing bias signalled at the meeting. We remain bearish on the AUD versus the EUR and NZD, and see significant scope for markets to turn more dovish on the RBA. Elsewhere, Canada March CPI data and retail sales are out on Friday (22 April). The outcome of the Doha oil producer talks on April 17 will be key to crude prices and we remain inclined to fade strength in both CAD and oil.