The U.S. dollar is mixed against major pairs after a week where Fed speakers offered a mixed narrative. The majority of policy makers agree that the massive balance sheet accumulated during the quantitative easing program from the U.S. central bank should start shrinking sooner rather than later. The point of debate remains the number of rate hikes in the horizon, with St. Louis Fed President James Bullard calling it "unnecessarily aggressive."
Economic data released this week has the market questioning how serious the Fed is about its economic forecasts as inflation, retail sales and building permits all came in lower than expected this week. The Trump administration continues to be caught in the turmoil of the Russian connection investigation and it now appears the President will be under investigation doing the dollar no favors.
The Bank of England’s Monetary Policy Committee is almost certain to keep interest rates unchanged today despite inflation rising well above its 2% target. It will be interesting to see if there are any dissenters at the MPC, who may be concerned about inflation getting out of control.
The U.S. dollar/Canadian dollar currency pair has taken a sharp drop over the past couple of days. For once, the sharp move hasn’t been because of crude oil. Instead, it was driven by comments made by Bank of Canada officials, suggesting that the central bank was preparing to raise interest rates.
The political fallout from the UK elections and the ongoing Trump/Comey saga, market participants need to monitor technology stocks after Friday's sharp sell-off in the sector in the markets. Any further sharp falls here could spook the wider equity markets and lead to a full-blown sell-off across the major global indices. This, in turn, could, for example, underpin safe-haven assets like gold and silver and undermine risk-sensitive forex pairs such as the USD/JPY and USD/CHF currency pairs.
It is going to be a big week for the markets this one, especially towards the end of it. Among other things, we will have the UK’s general elections, the ECB’s latest policy decision and former FBI Director James Comey’s testimony all to look forward to on Thursday. Chinese trade figures, a rate decision by the RBA and Canadian employment figures are among the week’s other key events.
The euro/Swiss franc (EUR/CHF) currency pair might not be the most important pair at the moment, but it could be on the verge of a potentially large move in the coming days and weeks. The forgotten pair recently came to life as it surged from around 1.0650 to around 1.0975 in a relatively short period.
I have been writing about the New Zealand Dollar lately and I think it has bottomed, turned and will continue to head higher. I think a first initial major target is the January 2017 high right above 73.50.
Last week saw the British pound/U.S. dollar currency pair drop sharply as the stay above 1.30 proved to be short-lived, as we had long expected. The drop does not necessarily point to a trend change, but it does show market participants are edgy ahead of the UK general election next week. With some key short-term support levels broken, the cable may weaken further in the coming days, especially if this week’s U.S. economic pointers surprise to the upside.
Among the euro pairs, the EUR/JPY is the one which has caught my attention of late. This pair has surged higher in recent times, breaking through several levels of resistance, including 124.10, which was the prior swing high. Mind you, it has had difficulty breaking through this level, but while above it, the short-term bias would have to be bullish.