USD: Will Fedspeak confirm a June hike?
President Trump is set to meet with Israeli Prime Minister Benjamin Netanyahu on Monday. Hoping to kick start peace negotiations between Israel and Palestine, Trump has called this visit “a rare opportunity” to bring peace to the long-contested region. Despite the reprieve from negative political headlines in the US, the dollar remains in a slump. The DXY US dollar index was sitting at more than a 6-month low when New York markets opened Monday morning. Next on the political front: Trump’s full budget on Tuesday and the Congressional Budget Office’s updated estimate of the bill to replace and repeal Obamacare on Wednesday.
Outside of the political space, we will be closely watching the various Fed members speaking this week. Alongside the release of the most recent FOMC meeting minutes, their language will be combed for clues to confirm whether the Fed is ready to hike interest rates in June. Durable goods orders and GDP growth on Friday morning could provide some late-week volatility.
EUR: “Too weak” comments send euro soaring
The euro is pushing higher once again after German Chancellor Angela Merkel commented that “the euro is too weak” on account of ECB policy.
The EU published their negotiating directives on Monday morning, proposing a cool €100 billion divorce bill for Britain. The directives state that the UK needs to settle any obligations and “should also fully cover the specific costs related to the withdrawal, such as the relocation of EU agencies.” The relocation of these agencies itself could cloud the EU’s stance as Reuters reported an internal debate on the matter. Infighting could delay the European Union’s timetable for legislation outlining the changes to euro clearing after Brexit.
Ahead, German growth figures on Tuesday will be chased by preliminary services and manufacturing PMI figures for May which are anticipated to carry on a trend of strong sentiment in the business sector. Wednesday we will hear from ECB President Mario Draghi who has been stubbornly cautious despite stronger data and will be a focal point for euro traders.
GBP: We’re not paying
Britain will play hardball if UK Brexit Secretary Davis has anything to say about it. “Britain will walk away from Brexit talks unless Brussels drops demands to charge it EUR100bn to leave the European Union,” Davis warned in an interview with The Times. Theresa May is facing significant headwind in her campaign ahead of the snap elections in June. Polls over the weekend show that the lead her Conservative party had is narrowing, prompting her to switch gears on social care today. May called for early elections to strengthen her hand in Brexit negotiations and keep infighting to a minimum, failing to capture a larger majority in Parliament would certainly be a detriment to her position.
AUD: Peripheral drivers
Iron ore prices retreated Monday morning after hitting a two-week high, but this didn’t stop AUD from moving higher in light of broad USD weakness. With a fairly quiet domestic calendar, AUD is likely to trade with commodity prices and on peripheral data and headlines. Traders taking long AUDUSD positions are at the lowest levels since May 1st, indicating that investors may be ready to scale back their bets for a stronger Aussie dollar.
CAD: Follow the [oil] money
Oil is rallying as investors expect OPEC to reach a new agreement on production cuts Thursday which should continue to support CAD. Higher oil prices and a weaker USD have propelled the Canadian dollar to a one-month high against the greenback.
The Bank of Canada will be highlighted this week. Both the interest rate decision and statement will be released Wednesday. We expect the caution to carry through in the statement. Recent data has kept in-line with the BoC’s projections, which will likely push the bank to maintain a neutral bias towards policy.
JPY: Domestic calendar
Japanese trade figures overnight suggest that Japan is seeing robust growth for the nation, Exports gained for the fifth straight month in April as trade within Asia broadly expanded. A preliminary estimate of manufacturing PMI will be out Tuesday; the survey has seen steady gains since May of last year. The Bank of Japan’s Governor Kuroda will speak Wednesday, an important speech to watch ahead of inflation data on Friday.
North Korea confirmed the successful launch of another ballistic missile, which has not played out in risk-driven trades but could weigh on broader appetite if we start to see other headlines in the geopolitical space.