While we were focused on developments on the East side of the Atlantic last week (including the ECB meeting), the market’s focus is shifting westwards this week, with the May Federal Reserve meeting set to conclude tomorrow and the always-impactful Non-Farm Payrolls report on Friday.
The euro/U.S. dollar (EUR/USD) currency pair’s sell-off accelerated last week, although it remains to be seen if it will go any further lower or stage a comeback this week. Last week’s sell-off was mainly due to the rebounding US dollar than weakness in the euro. However, the latter also weakened slightly because of a slightly dovish ECB than expected.
On Friday, the Dollar Index traded to the highest level since Jan. 11 and came within five ticks of its 200-day moving average. This is significant because Jan. 11 was when the European Central Bank Minutes showed the bank their plan to change its policy message early this year to tighten sooner than later; this set a bullish tone for the euro and a bearish tone for the dollar.
The U.S. dollar had massive weekly gains against all majors. The release of the gross domestic product for the first quarter of 2018 beat expectations but did little for a dollar that had rallied all week. Dovish central bank rhetoric from the European Central Bank and the Bank of Japan have increased the anticipation for the U.S. Federal Reserve’s Federal Open Market Committee on Wednesday, May 2 at 2:00 p.m. EDT.
In January 2015, the Swiss National Bank, in a move that took everyone by surprise, decided to remove the then floor of 1.20 in the euro/Swiss franc currency pair exchange rate, despite repeatedly promising to defend that level at all costs and for as long as necessary. Rates literally tanked more than 2,000 pips in a matter of minutes as the franc skyrocketed. Fast forward just a little more than three years...
Today’s economic calendar signals that the recent move in the Euro has stretched its limits; Business Confidence data from all regions and most importantly the German Ifo read missed while Case Shiller Housing, Consumer Confidence and New Home Sales all beat expectations in the United States.