North American Wrap-up: Turnaround Monday

Much like many high school kids from across the country that returned to their classrooms today, North American investors returned to the markets.  While many of those investors may have been a little timid walking into a week that was proceeded by a swoon the previous week, that timidity soon turned to excitement as US data kicked the week off with some strong results.  US Retail Sales performed even better than inflated expectations of 0.8% in the month of March by improving 1.1% overall and sent the US equity market roaring higher for a majority of the day.  Helping to lead the charge were positive earnings from businesses like Citigroup and WebMD, which only gave the market a little more tailwind in the process.

On the currency front, developments over the weekend kept things in check as European Central Bank figures like Mario Draghi, among others, attempted to temper the risk positive move in their currency.  Draghi reiterated how the ECB is uncomfortable with the continued rise of the EUR as it is serving to keep unemployment high and inflation low.  While Draghi was hesitant to say specifically how he intended to reverse trending inflation, he did mention that the ECB has unconventional tools such as negative interest rates or the much ballyhooed Quantitative Easing program at their disposal.

Strangely enough, despite the positive US data and the attempted jawboning by ECB members, the EUR failed to see a monumental drop.  Much like the past few attempts at talking down their currency, ECB member’s threats are having less and less impact.  It appears the market has grown weary of the constant talk and is only willing to cease buying the EUR when officials finally do something instead of threatening to do so.  Then again, even the 25 basis point cut by the ECB back in November 2013 when the EUR/USD was at 1.34 only gave the currency pair more determination.  Is there anything that can keep the EUR down?

Outside of Europe, the antipodean currencies continued their strong year with the AUD/USD retaking the 0.94 handle and NZD/USD remaining bid around 0.8675.  Even the JPY crosses had a decent day after a week full of selloffs as the USD/JPY challenged the 102 level in early trade.

So the question on everyone’s tongue at the moment is if today is just a reprieve from the broader sell-off that started a little over a week ago, or whether last week was the long awaited pullback so many have been calling for in the weeks and months previous, slight as it may be?  Unfortunately, the answer may not come this week.  With the Easter holiday approaching quickly, liquidity may be more and more scarce as the days tick off.  US data only goes downhill from here as well with Retail Sales being the big kahuna of the week with only a few Federal Reserve speeches that likely won’t change anyone’s mindset.

Unless something substantially altering to the status quo happens somewhere in the world, like a Russia-Ukraine shooting war or a large miss on Chinese GDP, watch for more ranges in FX markets as more and more investors throw in the towel as the weekend nears.

Looking Forward                                                                       

Before anyone checks out too quickly this evening though, there is a potential market mover in the ranks.  The Reserve Bank of Australia will be releasing their meeting minutes from the most recent monetary policy decision in which they decided to remain on a neutral footing while praising many of the different sectors of their economy.  While they did mention that “the decline in the exchange rate from its highs a year ago will assist in achieving balanced growth in the economy,” they also added that the “exchange rate remains high by historical standards.”

Remember, it was only four short months ago that RBA Governor Glenn Stevens mentioned that he thought the AUD/USD should be closer to 0.85 than 0.95 and mentioned that a lower exchange rate would be more preferable than having to resort to lowering interest rates.  Since then, interest rates have remained steady, thanks to a pledge to keep them there from the RBA, but the AUD/USD has crept ever so closely to the 0.95 level.  Watch for some concern from the RBA minutes in regard to the exchange rate and if support near 0.94 can be broken, 0.93 could be a target for bears.