Market Outlook for the week of April 11-15
The coming week has several events that are likely to move the market. In France, the presidential election is in the spotlight. After the first round this weekend, incumbent President Emmanuel Macron will face Marine Le Pen in the second round of elections.
There are fears that Le Pen, who is considered a representative of the far right, will receive strong support, and a potential victory could negatively impact France’s relations with the EU and NATO in the long term. . With France being the EU’s second-largest economy, potential polls in favor of Le Pen in the second round could impact European markets and the euro.
This week will also see the release of several surveys in Europe, the US CPI m/m, the US PPI, the RBNZ rate statement and the official exchange rate, the CPI y/y for the British pound. The BOC and ECB will both have press conferences and comments from BOJ Gov Kuroda and FED members are also expected. Friday is a bank holiday in Europe, so low volatility is expected as traders head into the Easter holiday.
The US CPI is expected to rise again and it is likely to add to the aggressiveness of the Fed, which could boost the USD. The DXY is at a two-year high, and it could go higher in the near term.
The RBNZ appears determined to raise rates aggressively to keep inflation under control. Some analysts believe it is possible that they will tighten too much and if that happens the bank could be forced to revise its priorities to limit the negative effect on growth.
In the medium term, the outlook for NZD is bullish, but in the short term, the NZD/USD H1 chart looks good for selling opportunities. A correction is expected and the first level of resistance is located at 0.6905. If rejected, the next target could be 0.6729.
At the next ECB meeting, the bank’s policy is expected to remain unchanged, but Barclays analysts believe high inflation is likely to prompt the ECB to signal future policy plans.
The story of stagflation in Europe seems to be the main theme at the moment with fears that an economic slowdown in China and rising commodity prices will put pressure on the Eurozone.
Citi analysts point out that Europe “is facing the worst terms-of-trade shock since the 1970s, which opens up the risk of a European recession this year – even if their base case is that this is avoided. barely”. If the ECB begins its policy normalization, it could support the euro “if it slows structural European sovereign outbound yields versus currency-hedged USTs.”
EUR/USD has prospects for further depreciation. From a technical point of view on the H1 chart, we can see a bullish divergence, which means that the pair may experience a bigger correction down to 1.0970. If this level holds, it may continue its downtrend with next targets at 1.0825 and 1.0760.
For the Canadian dollar, Citi analysts now expect BOC hikes of 50 basis points in April, June and July this year, followed by increases of 25 basis points to 2.7% d end of the year. The CAD will also be supported by high commodity prices in the near future.
However, USD/CAD closed near the 1.2600 resistance level last week, and while the overall outlook is bearish, there is a chance the pair will climb higher through the end of the month. The next level of support is at 1.2525 and if it is rejected the pair may test resistance at 1.2650.
Despite favorable conditions for the CAD, the USD was bolstered by rising US yields and more US data points like the CPI, PPI and retail sales are expected to post gains for March, which will support more the USD.
Scotiabank analysts say the next Bank of Canada policy statement, monetary policy report and Governor Macklem’s press conference will have hawkish overtones for the CAD, but “there is a risk that either a) policymakers fail to deliver what is already forecast for next week or b) fail to prove sufficiently hawkish guidance to justify what the swap curve has priced in for the coming months.” Analysts advise a neutral stance on the CAD until further developments this week.
As with other currencies, the British Pound remains bearish for the foreseeable future with the mention that there is generally good seasonal performance for the British Pound in April which may be related to fiscal impacts and dividends. Over the past few years, GBP/USD has had a bullish seasonality in April. Whether that will happen again this year remains to be seen. In terms of monetary policy, the BOE is more likely to have a hawkish message than the ECB, BOJ and even the SNB. UK inflation is expected to rise further to 6.5% year-on-year.
Nothing new is expected from Kuroda this week as it seems that a weaker JPY is not seen as a problem for now. I expect the USD/JPY to enter a consolidation phase in the coming week and the JPY to remain weak until something new happens that could change the narrative.
The SNB is yet to signal a dovish stance despite continued CHF strength. Going forward, “a push below parity against the euro, if observed, could trigger political pressure on the SNB to weaken the CHF via modest FX intervention,” analysts said. City.
This article was written by Gina Constantin.