Easter Week - Breakouts or Fake outs?

The week before Good Friday and Easter is always an awkward one in the forex market. Holidays normally encourage profit taking but in the case of Easter, we often see new short term highs or lows set followed by reversal. This tells us that breakouts usually become fake outs Easter week especially since all markets are closed on Friday and most are also halted on Monday. What sets this week apart is the abundance of market moving data Tuesday, Wednesday and Thursday. Currencies have been stuck in consolidative ranges waiting for a catalyst or excuse for a breakout that could be triggered by any of these 10 key economic reports.

Top 10 Economic Reports to Watch this Week:

1. UK Employment Report
2. German ZEW
3. NZ CPI
4. Chinese GDP
5. UK CPI
6. Australian Employment
7. EZ PMIs
8. UK Retail Sales
9. US Retail Sales
10. CAD Retail Sales

The best performing currency today was the British pound. The 6-month extension to Article 50 brings a prolonged period of relief that should lift the currency. The uptick in house prices set the initial tone for the week but it will be up to employment, retail sales and CPI reports to usher in a new uptrend for GBP. According to the PMIs, labor market conditions improved in the service, manufacturing and construction sectors last month. So job losses should moderate but the real question will be wage growth - businesses may be reluctant to increase wages amidst Brexit uncertainty. Inflation should be higher but retail sales could be softer. If this week's data is good, we could see GBP/USD squeeze above 1.32.

The weakest currency today is the Canadian dollar, which fell sharply on the back of lower oil prices and softer business outlook survey. The survey turned negative in the first quarter as domestic and foreign demand pared from last quarter's lofty levels. Their main concerns center on slower US growth and trade tensions. In contrast the Australian dollar extended its gains slightly while the New Zealand dollar shrugged off softer services PMI. The recent slowdown in the manufacturing and service sectors are consistent with the Reserve Bank's dovishness. However New Zealand CPI is scheduled for release on Wednesday and prices are likely to rise given the uptick in food and commodity costs. Both currencies are also supported by US Treasury Secretary Mnuchin's positive comments on US-China trade talks. A deal is near and an announcement would be wildly positive for both currencies.

Euro is also in focus tomorrow with the German ZEW survey scheduled for release.Although growth is slowing and there are worries about recession, the DAX is rising and yields are low which could bolster confidence. EUR/USD is struggling to hold above 1.13 and may not see a meaningful break in either direction until the ZEW and PMIs are released. The sell-off in stocks also prevented USD/JPY from extending its gains beyond 112 despite a stronger than expected Empire State manufacturing survey. With no major US economic reports scheduled for release until Thursday, retracement is more likely than extension.