The dollar has recouped some of yesterday's losses while the yen has outperformed amid a risk-off start to the new quarter. EUR-USD settled in the upper 1.13s after peaking at a five-month high at 1.1411 yesterday. USD-JPY fell below yesterday's low in making a nadir at 112.05, while EUR-JPY and other yen crosses also declined. The Canadian dollar underperformed amid fresh losses in oil prices. There has been a slew of Markit manufacturing PMI reports out in Asia today, and a further slew will arrive in Europe and the Americas today. Top billing is the release of the U.S. payrolls report for March, where we expect a 190k headline (median 200k) while noting upside risk following strong ADP jobs data. A better than expected 50.2 March reading in the manufacturing PMI for China today had limited impact on markets, despite signalling a return to expansion after rebounding from 49.0 in the month previous. Japan's Tankan survey found large manufacturers being the most pessimistic since April 2013, which is when the BoJ launched its QQE program. This and the firmer yen hit Japanese stocks hard, the Nikkei closing 3.7% for the worse. Australia's ASX finished down 1.6% and the Shanghai Composite is showing a 0.6% decline in late PM session.
[EUR, USD]
EUR-USD settled in the upper 1.13s after peaking at a five-month high at 1.1411 yesterday. PMI data and, more especially, the release of the March U.S. payrolls report will drive markets today. All eyes will be on the jobs data after Fed chair Yellen earlier in the week wiped the risk of an April rate hike off the table while injecting doubt into the prospects of a June move. We anticipate the jobs report will shift the balance a little bit back to the hawkish side of the scale at the Fed. While we expect the headline nonfarm payroll gain to fall short of the 242k February pop, as well as the 228k monthly average from 2015, the sharp March rebound in producer sentiment and a tight claims path implies risk that the jobs report captures the March updraft. There is also a firm ADP trajectory through the 214k February rise. This should offset downside risk implied by the weak path of consumer confidence and restrained vehicle sales and output. EUR-USD near-term support/risk at 1.1342-50. The October 2015 peak at 1.1495 is an upside focal point.
[USD, JPY]
USD-JPY fell below yesterday's low in making a nadir at 112.05, while EUR-JPY and other yen crosses also declined as the yen outperformed amid a risk-off start to the new quarter. A better than expected 50.2 March reading in the manufacturing PMI for China today had limited impact on markets, despite signalling a return to expansion after rebounding from 49.0 in the month previous. Japan's latest Tankan survey, meanwhile, found large manufacturers being the most pessimistic since April 2013, which is when the BoJ launched its QQE program. This and the firmer yen hit Japanese stocks hard, the Nikkei closing 3.7% for the worse. The weak Tankan report maintains pressure on the BoJ to add more stimulus at its meeting at its next policy meeting on Apr-28. For now we expect the yen will retain its bias to rally during bouts of risk aversion in global markets.
[GBP, USD]
Sterling has been trading mixed, firmer in recent sessions against the dollar but weakening against the euro. Yesterday's release of unexpected revision higher in UK Q4 GDP, to +0.6% q/q versus +0.5% provisionally estimated, hasn't lasting impact as Q4 current account data was something of a shocker, rising much more than expected and reaching a record 7% as a percentage of GDP. Despite the upward path of Cable, we remain bearish of the pound. The ruling Tory party is becoming increasing divided and risk of Brexit is more than negligible, which incoming opinion polls continue to point to a close run outcome at the Jun-23 referendum.
[USD, CHF]
EUR-CHF has settled around 1.0900 . The franc had been bid in the wake of the Brussels attacks last week, though the Swiss currency had also been moderately bid in the wake of the SNB announcement of unchanged policy earlier in the month, which left the sight deposit and mid-point Libor target rates at -0.75%. The SNB stressed that the currency remains overvalued, and that it will "remain active in the foreign exchange market". The comparatively steady path of EUR-CHF following the ECB's stimulus bazooka in early March would have been a factor in staying the hand of the SNB. The central bank's boss Jordan said in late February that the central bank has the option, if need be, of boosting the impact of its negative interest rate policy (NIRP) by cutting back on the exemptions that apply to it.
[USD, CAD]
USD-CAD logged a five-month low at 1.2857yesterday, since recouping to a peak so far of 1.3049. The pair is being influenced by a mix of broader U.S. dollar weakness and oil price dynamics, with current declines in crude adding some extra fuel to the rebound in the U.S. dollar. The ebb and flow of Fed policy expectations is recommencing as an influence in forex markets having been virtually absent in the recent 'new normal' years. Crude prices have been relatively steady of late (broadly flat over the last three weeks), consolidating the rebound gains from the 12-year January lows. We're anticipating Friday's release of the U.S. jobs report to be supportive of Fed rate hike expectations and there for the U.S. buck, so recommend buying into recent weakness in USD-CAD.
