Financial markets have been waiting for the airstrikes launched by the US and it's allies over the weekend, however, the reaction has been somewhat muted. With a heavy week of macroeconomic data and the geopolitical tensions, we can expect some more large swings in the markets.
The US, White House, and Donald Trump remain front-and-center this week for global markets, especially the US dollar, however this week it's not just trade wars that are the major concern.Geopoliticall concerns have escalated over the weekend after air strikes by the US, the UK and France on chemical weapons targets in Syria, a move Russia has described as an act of aggression.
The US dollar remains under pressure after the situation in Syria intensified, and it could be that this remains the case why markets and investors try to decipher the news. The impact on stock markets has not been as aggressive as some might have expected, however. It is thought that this may be a one time strike at the moment, and more action could only occur if Russia or the Syrian were to retaliate.
This news has at least moved the attention away from the trade wars, for now, however, this may not be the case for too long. As well as the myriad of geopolitical issues, we will have to look a little closer to home for US dollar risk points this week as the economic calendar is jam-packed full of data this week.
As well as retail sales, initial jobless claims and housing data there are also 22 speeches by Fed FOMC members that after last week’s FOMC meeting minutes will likely have a large bearing on the overall direction for the US dollar as the week unfolds.
The economic calendar is full of data this week that will have a large say on the Euro as this week moves on. With the ECB rate decision due for release next week, we can expect economic data to be very much in focus as investors try to decipher in what direction the central bank will go.
In the build-up to that April 26 ECB meeting, we will get the Eurozone CPI reading on Wednesday. Inflation remains a huge talking point for ECB, and although we are not expecting any changes to the readings the trade uncertainties have led to the softening of a number of leading indicators.
The probability for any kind of movement in rates at next week’s ECB meeting is still very low, however, a change in language is not totally off the cards. A move that a better than expected CPI and ZEW reading would give more clarity on. Again for the Euro, much like the US, the ongoing geopolitical tensions between the US and Russia over Syria are likely to be a major concern and risk point that hangs over investors all week.
Life feels very different to the pound at the moment with a degree of upside continuing to lead to the strength against a number of its counterparts, most notably the Euro and US dollar. This is a very different picture to a year ago, when continuous destabilizing Brexit headlines meant investors were reluctant to take any kind of position due to the risk factor. The knee-jerk reaction seems to be something of the past as many are resigned to the fact that Brexit means uncertainty for the UK.
The next round of negotiations over a UK EU trade deal will likely mean that any long-term moves or direction are hard to come by, however the data-heavy week this week is likely to mean a lot of short-term moves for Sterling. The releases we will see are key data points with the UK jobs report leading the way. Here we are focusing on the wage growth yet again after last months bumper number. But with the jobs numbers on Tuesday, CPI on Wednesday and retail sales on Thursday it will be a week where Sterling is very much in focus.
The Canadian dollar has been the best performing G10 currency in the last month – mainly attributed to the risks generated by the renegotiation of NAFTA. The negotiations are expected to go on for a long while yet, with President Trump pushing for a resolution sooner rather than later. It seems the more the pressure comes from Washington the less likely we are to see progress!
The Loonie is, however, reaping the benefits from the geopolitical tension over Syria, as the tension has increased the correlation between the Loonie and the oil markets, meaning some short-term positive moves.
The week's agenda will be dominated by the BoC policy meeting on Wednesday, and with only an 18% probability of a rate hike this week it is likely to be language change we look for in the statement. Again we expect the central bank to play on the trade tension and NAFTA negotiation at the meeting, which has the potential to be seen as dovish. This month will also see the release of the BoC’s economic projections which will, of course, be under close scrutiny.
The Australian dollars underperformance amid rising US and China trade tensions and the adjustment in prices in industrial metals such as iron ore has been clear over the last couple of weeks, and unlike the loonie which is also pegged to commodities, it is the worst performing currency in the G10.
The uncertain global backdrop is a huge issue for most currency pairs, but it has been especially evident for the Aussie dollar that any relief rally has been short-lived, unlike those on the pound or Canadian dollar. This week is another busy one as the Reserve Bank of Australia meeting minutes are released as well as the March jobs report. These two go hand in hand as it seems a rate hike could be set aside until we see improvement in the labor market.
Too much uncertainly in the world