Dollar rebound to slow?

On Monday, US markets reopened after the Easter weekend, while European ones remained closed. The dollar traded with a slightly negative bias in very thin volumes. February US spending and income data were close to expectations and January spending (as expected) was revised sharply lower.
US bond yields were already sliding lower, but the dollar declined on the release, only to recoup some losses later on. EUR/USD closed the session at 1.1196 (from 1.1174 on Thursday evening). USD/JPY decoupled from the overall USD decline and finished the session at 113.45 (from 112.90 on Thursday evening).

This morning, most Asian equities mostly show moderate losses. Japanese data were mixed. Overall households spending came out at a stronger than expected 1.2% Y/Y, but the figure was probably affected by calendar issues. Other indicators like the retail sales suggest ongoing sluggish consumer dynamics.
There is a lot speculation that PM Abe might announce another delay in the planned sales tax hike and announce snap elections for July. Speculation on more fiscal, but also monetary stimulus, is currently a (slightly) negative for the yen. USD/JPY is changing hands in the 113.60 area. Oil ($40 p/b) and other commodities trade with a slightly negative bias. EUR/USD is holding close to the 1.12 level, showing no clear directional trend.

Later today, the February EMU M3 money supply growth is expected to have stabilized at 5.0% Y/Y. Lending picked up in January and we expect the positive trend to have continued. In the US, Conference Board’s consumer confidence is forecast to pick up, from 92.2 to 94.0. Although University of Michigan confidence weakened unexpectedly this month, we see risks for an upward surprise in the Conference Board’s index. So, the data probably won’t give a clear guidance for EUR/USD trading. Regarding Fed speakers, the focus will be on Fed chairwoman Yellen speaking in New York. Of late, several Fed members kept the door open for an April hike, despite the soft tone of the March FOMC meeting. Markets will look out whether Yellen will keep this line. If she is more neutral/soft, it might be a negative for the dollar. We start the week with a neutral bias on the dollar.

Over the previous ten days, the dollar recouped part of the post-Fed losses, but its rebound seems to be losing momentum. Yellen and/or the US data will decide whether the USD comeback as further to go.

After the ECB meeting and the dovish mid-March FOMC meeting, the dollar was sold as the Fed signalled a much more gradual rate path going forward. EUR/USD broke above the 1.1200/1.0810 range. However, the USD losses remained moderate as several Fed speakers kept the door open for a rate hike, even at the April meeting. A first resistance at 1.1376 even wasn’t challenged. So, EUR/USD trading remains a range trading story, albeit at a slightly higher level. 1.1495 remains the key line in the sand medium term. The soft Fed approach pushed USD/JPY temporary below the 110.99/114.87 range. The move was countered by warnings from the BOJ. Last week’s rebound is constructive and leaves the downside of USD/JPY better protected, unless risk sentiment turns outright negative again. The 114.87 range top is the first upside target.

EUR/GBP 0.7929/47 resistance still within reach

Last week, sterling traded on the defensive, as several internal and external factors supported the case for a pro-Brexit vote at the June referendum.
Yesterday, in thin US trading, cable jumped higher and outperformed EUR/USD in the wake of soft, but as expected, US spending data. As the move occurred when UK markets were closed, we don’t give much weight to it. EUR/GBP closed the session at 0.7854. Cable finished the day at 1.4254.

Today, there are no UK eco data. The BoE financial policy committee will publish a statement following its March 23 meeting. It might propose restrictions on the buy-to-let market as the BoE sees potential risks to financial stability in that area. The analysis is interesting and underscores the side-effects of an ultra-easy monetary policy. However, we don’t expect a big impact on sterling trading. We suspect yesterday’s sterling rebound. So, in a daily perspective, sterling might correct a bit lower. This might a fortiori be the case if sentiment on risk turns negative.

Last week, Brexit fears set sterling again under pressure. Cable declined off the 1.45 area, but a first important support at 1.4053 was left intact. EUR/GBP moved temporary above the key 0.7929 resistance, but a sustained break didn’t occur. If it would break sustainably, it would additionally damage the sterling picture and open the way to the 0.8000/0.8066 area. We stay cautious on sterling long positions.

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