Daily Market Pulse

A lot of good news is priced in


The Dollar Index, also known as DXY, was almost unchanged versus major peers on Wednesday, tracking Treasury yields lower, after minutes of the Federal Reserve’s March policy meeting offered no new catalysts to provide a clear direction for the FX market. From the minutes, Fed officials remained cautious about the risks posed by the pandemic to the U.S. economy, despite the boost from the massive fiscal stimulus. Although many market players are still betting on a bullish trend in the near term, tons of good news (strong vaccine drive, rebound in labor market, inflation picking up) are already priced in. Today, Fed Chair Jerome Powell will be the highlight, discussing the global economy at an IMF panel. At the same time, the U.S. jobless claims data will be expected. 


Albeit the fact that the EUR closed almost unchanged against the USD, it is imperative to note that the EUR managed to break back above its 200-day moving average yesterday. This move suggests that there is room for further EUR appreciation in the near term. Apart from technical analysis, the recent Eurozone Composite PMI showed that the private sector returned to growth on the premise of strong manufacturing performance in March. The improvement in activities was seen across the bloc, with all nations experiencing a rise in their indices during last month. This growth was led by Germany, where a resurgent manufacturing economy helped drive the country’s best overall activity performance in just over three years. Looking ahead, the latest Producer Price Index data from the eurozone will be published later today.


The Sterling edged 0.64% down against the greenback while London’s FTSE 100 climbed 0.9% and domestically focused FTSE 250 index registered a record high. Although there was no obvious catalyst negatively impacting the GBP, stocks gained on the back of a weaker pound. However, as expected, the U.K. services PMI reported just yesterday of a strong rebound in business conditions during March, with activities, new orders, and employment all picking up since the previous month. The index came at 56.3 in March, up distinctively from 49.5 in February. Looking ahead, the construction PMI report will be published later today.


The Japanese yuan closed up 0.05% against the greenback after the U.S. benchmark 10-year Treasury yield dropped to 1.67%. However, domestic economic data capped further JPY’s gains with the coincident indicator index falling in February, suggesting a lingering impact of the Covid-19 pandemic on economic recovery. The index consists of a range of data including factory output, employment, and retail sales. In general, the JPY might continue to trade tick-for-tick with Treasury yields amid prospects of higher yields, which should see the USD/JPY pair rally over the medium term.


The Loonie slid 0.32%, extending its losses for two trading sessions in a row, on Wednesday. The CAD dropped against its U.S. rival after domestic data showed the trade surplus narrowed to CAD 1 billion in February from the previous month’s CAD 1.2 billion. It was the first time since late 2016 that the trade balance was in a surplus position for two consecutive months. On the other hand, the Ivey Purchasing Managers Index data showed that Canadian economic activity expanded at its fastest pace in 10 years in March. The seasonally adjusted index jumped to 72.9 from 60.0 in February. It was the highest level for the index since March 2011 and the second-highest since the PMI was launched in 2000. Today, in the absence of fresh data, the CAD’s direction will be driven by international headlines and oil prices.


The Mexican peso retracted 0.17% against the U.S. dollar on Wednesday. The currency is still supported by oil prices, attractive differential interest rates, as well as a neutral political risk trend in the recent weeks. Elsewhere, the country has been busy on the IMF-World Bank spring meetings, pressing for global vaccination efforts and urging debt relief for middle-income countries in a joint statement with Argentina. The statement called for middle-income nations to be able to take advantage of the International Monetary Fund’s plan to increase its allocation of special drawing rights (SDR), a type of international reserve asset, by $650 billion. Mexico also proposed creating an international fund to facilitate the restructuring of middle-income countries’ debts. Looking ahead, investors and the central bank will keep an eye on March’s Consumer Price Index which will be released later today.


On Wednesday, the Chinese yuan was almost unchanged (-0.08%) against the greenback, as investors became anxious and awaited clear USD’s direction in global markets. Today, market players will wait for inflation numbers from March, hence some remarks from the Central Bank. Services prices are likely to rise, as well as food and energy prices. The Producer Price Index probably jumped in March, as commodities inflations hot up. In general, it is worth highlighting albeit the yuan has weakened against the U.S. dollar in recent weeks, it has retained strength against other currencies.


The Brazilian Real rehearsed a recovery but did not have enough support to consolidate gains from the day before. The BRL inched 0.42% down against the greenback as a second wave of Covid-19 deaths in the country climbed above 4,200 in a single day, raising fears that this number has the potential to increase further. Meanwhile, President Bolsonaro said that the pandemic situation is being used politically “to overthrow the president” and criticized the focus on the search for an effective vaccine. In addition, weighing on the BRL and equities, Mr. Bolsonaro also commented that it was still possible to change Petrobras's fuel pricing policy. The move stoked fears of government intervention in fuel prices, which under past administrations has run up huge costs.


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