Marc to Market

Greenback Recovers Despite New Threats on the Fed and Stronger UK and Chinese GDP

noreply@blogger.com (Marc Chandler) — Thu, 16 Apr 2026 06:49:00 -0400

(A business trip will disrupt the daily commentary tomorrow and next week, but the weekly analysis will be posted here on April 18 and the May monthly note will drop on April 25. Thank you for your patience, and good luck).

The Dollar Index did not snap its losing streak yesterday but extended it for its eighth consecutive session to match the longest downdraft since April 2011. The streak may end today if the dollar’s gains are sustained. Despite stronger than expected UK (and China) GDP figures and a solid Australian jobs report, the greenback is trading firmer against most of the G10 and emerging market currencies. Risk appetites seem intact, with the Nikkei following the US S&P 500 and Nasdaq to record highs.

A possible two-week extension in the US-Iran ceasefire may have helped sentiment. However, with the blockade of Iranian ports in place, some projections show storage capacity would be exhausted in two weeks. The two-week extension would add pressure on Tehran. Meanwhile, President Trump indicated that the investigation into the Federal Reserve will continue and he accepted that this could delay the confirmation of Kevin Warsh to succeed Powell. What happens if the confirmation is not complete by the time Powell’s term as chair is over is not immediately clear but the president’s threat to fire Powell has been noted but apparently ignore.

Prices

G10

• The euro did not trade below $1.1770 yesterday and spent much of the North American afternoon straddling the $1.1800 area. It reached almost $1.1825, which corresponds to the (61.8%) retracement target of the euro’s decline since the last January high (~$1.2080). It was greeted by sellers who pushed it back to almost $1.1770. Initial support is near yesterday’s low and then $1.1755.

• The dollar held above Monday’s low (~JPY158.60) against the yen yesterday but stalled in front of the 20-day moving average that was found slightly below JPY159.20. It was sold to a six-day low near JPY158.25 initially, seemingly encouraged by implied threat by Japan’s Finance Minister Katayama, who after meeting with US Treasury Secretary Bessent, said officials were prepared to take “bold action” to support the yen. However, the dollar has recovered to push slightly above JPY159 in European turnover. Through the middle of the month, there has been one minor violation of the JPY158-JPY160 range.

• Sterling was confined to about a third of a cent below $1.3580 yesterday. It settled little changed on the day in uneventful turnover. Monday’s high was about $1.3590, slightly below the (61.8%) retracement of sterling’s decline since the late January high (~$1.3870). It reached a new two-month high today before the stronger than expected February GDP (0.5%) and has reversed lower. It has been sold through yesterday’s low (~$1.3545). Initial support is seen in the $1.3500-25 area. Options for about GBP307 mln at $1.3520 expire today.

• The Canadian dollar remained firm yesterday and finished strongly. The US dollar held slightly below Monday’s high (~CAD1.3795) in early North American dealings. It trended lower most of the session and took out Monday’s low (~CAD1.3730) in the NY afternoon. It slipped below CAD1.3715, the lowest level since March 23. It has steadied in the European morning and moved back into yesterday’s range. The CAD1.3740-60 area offers the initial hurdle.

• The Australian dollar reached almost $0.7180 yesterday and extended the gains to almost $0.7200 today to reach its best level since mid-2022. The upward momentum was not sustained, and the Aussie has slipped through its closing levels and is slightly lower on the day. Nearby support may be around $0.7150 and then $0.7125.

• The Mexican peso traded quietly yesterday, and the stretched momentum indicators warn of the likelihood of some near-term consolidation. The peso is the fourth strongest emerging market currency this month, with a nearly 4% gain. In January and February, the dollar forged a base around MXN17.10. The greenback settled near MXN17.2270 before the war began and slipped below MXN17.20 briefly on Monday. The dollar held above MXN17.24 yesterday. It initially fell a little below MXN17.22 today but has rebounded above MXN17.28. The MXN17.30-MXN17.32 may offer initial resistance.

• The offshore yuan fell against the dollar yesterday to snap an eight-session advance. It matched the longest rally since February 2020. It is trading with a slightly softer bias today and the dollar has pushed back above CNH6.82. Nearby resistance may be around CNH6.84. The PBOC lifted the dollar’s reference rate today for the first time this week. It has been set at three-year lows for the past two sessions. The dollar’s fix was set at CNY6.8616 (CNY6.8582 yesterday).

• The Indian rupee is traded quietly and a little firmer today. The US dollar is trading inside yesterday’s range (~INR93.1335-INR93.3575).

Other Markets

• The US S&P 500 and Nasdaq equity indices reached record highs yesterday and the positive sentiment spilled over into the Asia Pacific region. Most of the large bourses gained at least 1% and the Nikkei’s nearly 2.4% was sufficient to lift it to a record high. Europe’s Stoxx 600 has been alternating daily between gains and losses for nearly two weeks. Yesterday was a down day, so today it is up. US index futures are trading firmly.

• Benchmark 10-year yields are mostly lower. The 10-year JGB yield eased a basis point to 2.39%, while European yields are mostly 2-3 bp lower. The 10-year Treasury yield is around a basis point softer near 4.27%.

• Gold is trading firmly but within yesterday’s range. It reached $4871 yesterday, its best level in nearly a month. Silver is firm, straddling the $80 level.

• May WTI dropped slightly below $87 yesterday but settled above $90, which it is holding above today. Yesterday’s high was near $93.30. Today’s high has been $93.00. A push above there could target $95.

Data

• The US reports March industrial production figures today. Both industrial output and manufacturing production are expected to have eked out a small 0.1% gain. If accurate, it would cap the strongest quarterly rise in industrial output in three years. Still, the Atlanta Fed’s GDP tracker anticipates the second consecutive quarter below what the median Fed view sees as trend growth (2%, up from 1.8% in December 2025). Also, on tap today is the NY Fed’s April services survey and the Philadelphia Fed’s business outlook. The US has seen a decline in consumer sentiment and small business optimism. Weekly initial jobless claims are due, as well. The four-week moving average has risen once since early February and that was the week ending April 3.

• Canada reports March existing home sales. They fell in the previous four months and five of the last six.

• The UK economy expanded by 0.5% in February after it unexpectedly stagnated in January. Industrial output and services activity improved sequentially, both rose by 0.5%, and construction surged by 1%. The trade deficit widened. In fact, excluding precious metals trading, the trade balance returned to deficit (`GBP2.3 bln) after January saw the first surplus since the end of 2024.

• Australia grew ~18k jobs in March and the unemployment rate was steady at 4.3%. Full-time posts grew by 52.5k, after having lost a revised 27.7k in February (initially -30.5k). Earlier this week, the deputy governor of the central bank warned that inflation was too high and acknowledged that officials were not “highly” confident that the current rate setting is sufficient, especially given the new shock emanating from the Middle East war. The futures market is discounting about 72% chance of a hike at the early May meeting.

• China reported 5.0% growth in Q1 26, which was a little better than expected. Industrial output rose 5.7% year-over-year but retail sales disappointed rising only 1.7%. Fixed asset investment ticked lower and the surveyed unemployment rate edged up to 5.4% from 5.3%. New and used house prices continued to decline, and the property market is still distressed.

• India’s trade March trade deficit narrowed. Exports fell 7.4% year-over-year in March (0.8% in February) while imports tumbled 6.5% (+24.1% in February). India also reported its March unemployment rate rose to 5.1% from 4.9%.

Disclaimer

The Greenback is Poised to Snap Losing Streak

noreply@blogger.com (Marc Chandler) — Wed, 15 Apr 2026 06:47:00 -0400

The US dollar is enjoying a firmer bias today. The Dollar Index is threatening to snap a seven-day decline. President Trump has held out the possibility that the “war is close to over”. Yet the improved risk appetites in recent days reflects the market anticipating this. A new round of US-Iran negotiations could begin as early as tomorrow. Seeming unfazed by the US blockade preventing Iranian oil shipments that mostly go to China, the PBOC set the dollar’s reference rate at a new three-year low today.

Yesterday, the same day that the Senate Banking Committee indicated confirmation hearing for Fed chair nominee Kevin Warsh for April 21, leaving 25 days before Powell’s term expires, US prosecutors made an unannounced visit to the Federal Reserve’s offices in Washington. They lacked clearance protocols to enter the construction site. US Senator Tillis has reaffirmed his commitment to block the confirmation until the investigation is resolved.

Prices

G10

• The euro reached its best level since the Middle East war began. It poked slightly above $1.1810 as European session drew to a close yesterday. The euro spent the North American afternoon consolidating and found support ahead of $1.1785. The euro is trading quietly with a heavier bias. It has approached $1.1770 in Europe. It seems like it is between two large option strikes: 2 bln euros at $1.1750 and 1.6 bln euros at $1.18, and both stacks expire today.

• The dollar has recorded two lower higher since it peaked against the yen in late March near JPY160.45. It peaked last week a smidgeon above JPY160 and this week’s high was about JPY159.85. Yesterday’s retreat brought the greenback to JPY158.60, and in the consolidation in the North American afternoon, it could not reclaim the JPY159 handle. It barely traded above there today and held above JPY158.65. Still, a near-term low may be in place, and the US dollar can return to the JPY159.20-40 area. Nearly $1.5 bln in options at JPY158.85 expire today.

• Sterling reached $1.3590 yesterday, its best level since February 17. It stalled a few hundredths of a cent below the (61.8%) technical retracement objective of the losses since the year’s high was recorded in late January (~$1.3870). It settled above the upper Bollinger Band (found near $1.3585 today). Sterling is trading with a slightly heavier bias in a narrow range (~$1.3545-$1.3580). Support may be the $1.3480-$1.3500 area.

• The Canadian dollar reached a three-week high yesterday amid the risk-on environment spurred by reports that US-Iran negotiations may continue later this week. The US dollar was sold the CAD1.3750 area, the halfway mark of the greenback’s rally from the March 9 low (~CAD1.3525). The US dollar bottomed in early North American activity and made its way back to around CAD1.3775. It is hovering around there today (~CAD1.3660-CAD1.3780). Initial resistance is CAD1.3800-25 area.

• The Australian dollar settled a little below $0.7120 before the war began and reached nearly $0.7150 yesterday to kiss the upper Bollinger Band (found near $0.7165 today). It is trading firmly in the upper end of yesterday’s range. It has not been below $0.7115 nor above $0.7150 so far today. The Aussie’s recent high was recorded near $0.7190 last month, its best level since June 2022 after the central bank delivered its second rate hike of the year. Central bank officials have purposely left open the possibility of hike at the conclusion of its next meeting (May 4-5).

• Yesterday, the Mexican peso reached its best level since the Middle East war began. The US dollar slipped briefly below MXN17.20. The greenback quickly recovered and spent most of the North American afternoon chopping between MXN17.25 and MXN17.28. It has been mostly in that range today. Initial potential may extend toward MXN17.30-MXN17.32.

• The yuan rose to a three-year high yesterday. The US dollar traded to about CNH6.8060 yesterday. It was the eighth consecutive session the dollar fell against the offshore yuan. The greenback is trading firmer today and reached slightly above CNH6.82. In the past two weeks, the PBOC lowered the dollar’s reference rate by about 0.75%, the largest two-week adjustment since September 2024. It set the dollar’s fix slightly lower today at CNY6.8583 (CNY6.8593 yesterday).

• Initially the Indian rupee rose as the local markets re-opened from yesterday’s holiday but as the session progressed its gains were pared and the greenback settled near session highs. The dollar opened below Monday’s low (~INR93.2590) and recovered through Monday’s high (~INR93.4075) before settling near INR93.3765. The rupee still looks soft despite equity market gains.

Other Markets

• Asia Pacific equities rallied today, though among the large bourses, China’s CSI 300 is an exception, and it slipped around 0.35%. South Korea’s Kospi led the regional advance with a little more than a 2% gain, followed by India’s 1.6% rise and Taiwan’s nearly 1.2% advance. Europe’s Stoxx 600 is struggling to make much headway after rallying nearly 1% yesterday. US index futures are slightly lower.

• Benchmark 10-year yields are narrowly mixed in Europe. Most yields are +/- half of a basis point. The 10-year Treasury yield is up a basis point to nearly 4.26%. The 10-year JGB yield was practically flat at 2.40%.

• Gold and silver are trading with a heavier bias. The yellow metal initially extended its gains slightly through $4870 to reach its best level since March 19 but was greeted by sellers that drove it back below $4790. It is straddling the $4800 area in late European morning turnover. Silver, too, initially extended its gains to $81 and has reversed lower and is below $79 in European dealings.

• May WTI extended yesterday’s loss and fell slightly below $87 but has since recovered to new session highs (~$92.70) and is consolidating ahead of the North American session.

Data

• The US reports March import and export prices and February TIC data. Import and export prices likely surged last month. The median forecast in Bloomberg’s survey is for import prices to jump to a 3.9% year-over-year increase from 1.3%. That would be the largest increase since October 2022. Export prices had risen 3.5% year-over-year in February and may have accelerated toward 5% in March. The Treasury International Capital report attracts interest from economists and reporters than market participants. Last year, the net inflow of portfolio investment into the US (averaged $118.36 bln a month) was about $1.42 trillion, while the current account deficit was a little below $1.12 trillion. Portfolio capital inflows were about $1.22 trillion in 2024 and around $840 bln in 2023. The Empire State manufacturing survey for April is on tap. It fell to -0.2 in March from 7.1 in February. The risk seems to be on the downside. The Beige Book, the anecdotal summary of the activity in the different Fed regions, prepared for the FOMC meeting on April 28-29 make for interesting headlines but the impact on market expectations will likely be minimal. Fed officials Barr, Hammack and Bowman speak today.

• Eurozone industrial product rose for the first time in four months with a 0.4% gain in February and January’s decline was nearly halved to -0.8% from -1.5%. The national reports were disappointing. Of the eurozone’s four largest members, only Italy eked out a small increase (0.1%), and they were all weaker than the median projections in Bloomberg’s survey. That said, recall that the February manufacturing PMI rose to 50.8 from 49.5, its best reading since June 2022.

• China reports Q1 26 GDP first thing tomorrow. The median forecast in Bloomberg’s survey is a 1.4% quarter-over-quarter expansion after 1.2% in Q4 25. Retail sales and industrial output are expected to have slowed in March. The property market remains problematic, and house prices are expected to continue to drip lower.

Disclaimer

Optimism Weighs on the Greenback

noreply@blogger.com (Marc Chandler) — Tue, 14 Apr 2026 06:45:00 -0400

North American participants shrugged off the pessimism seen in Asia Pacific and Europe yesterday after the US-Iran negotiations broke down over the weekend. The optimism was contagious and reports that another round of negotiations are being contemplated during the ceasefire that expires next week. The dollar is broadly weaker. Global equities and bonds have rallied today and crude oil is softer.

Today’s highlights include a much smaller than expected March Chinese trade surplus and tightening by the Monetary Authority of Singapore. The US earnings reporting season continues, and the World Bank-IMF meetings get underway. At least five Federal Reserve officials speak today and the US reports March PPI. In byelections yesterday, the Liberal Party in Canada picked up two seats, giving Prime Minister Carney a parliamentary majority.

Prices

G10

• The knee-jerk risk-off expressed in Asia Pacific trading took the euro slightly below $1.1660 early yesterday, about a fifth of a cent below the pre-weekend low. After consolidating in Europe, the North American session bid the euro to new session highs near $1.1765. It recorded an ostensibly bullish outside up day and posted its highest close since the war began. Follow-through buying today carried the single currency to almost $1.18. The $1.1800-25 area offers the next important hurdle. The day before the war began, the euro settled slightly above $1.1810. Options for about 1.3 bln euros at $1.18 expire tomorrow.

• The dollar gapped higher against the yen yesterday and reached JPY159.85 before the buying dried up. The dollar reversed lower in North American dealing, closed the cap, and left a potentially bearish shoot star candlestick in its wake. New session lows were made in late North American activity, near JPY159.30. The greenback has been sold to JPY158.85 today, where options for $1.24 bln expire today. Still, additional losses look likely. The next area of support may be around JPY158.60.

• Sterling posted a big outside up day yesterday. Like the euro, it traded on both sides of last Friday’s range and settled above its high. On the day before the war began, sterling settled slightly above $1.3480. It settled above there yesterday. Sterling has advanced to $1.3550 today. The $1.3515 area corresponds to the halfway point of decline from the late January high (~$1.3870) to the end of March low (~$1.3160). The next retracement target is near $1.3600.

• Risk-off initially lifted the greenback to a new three-day high against the Canadian dollar (~CAD1.3880), but the North American participants seemed to put more weight on reports that a US-Iran deal was close encouraged a move into risk assets. US stocks recovered from initial losses and the greenback weakened. It fell through and settled below CAD1.3800 and confirmed the outside down day. It has approached the next technical target around CAD1.3750. A break could spur another leg lower toward CAD1.3700.

• The Australian dollar also posted a bullish outside up day. It initially was sold to a three-day low near $0.6985 and recovered to poke slightly above $0.7100 for the first time since March 19. It has risen slightly above $0.7120 today, which leaves little on the charts to deter a retest of the high since June 2022 seen a month ago (~$0.7185). Options for A$1.35 bln at $0.7125 expire tomorrow.

• The Mexican peso gained as risk appetites returned in North America. Initially, the dollar rose to MXN17.4435 but turned lower to trade below MXN17.30. Last Friday’s low was near MXN17.25. It has edged closer today. The roughly two-year low was recorded in mid-February near MXN17.0865. We suspect the low for H1 26 is not yet in place.

• The dollar posted an outside down day against the offshore yuan. The dollar reversed lower after reaching about CNH6.8435. It fell to nearly CNH6.8165 and extended to almost CNH6.81 today, a new three-year low. A break of CNH6.80 could target the CNH6.70 area. The PBOC had set the dollar’s reference rate a little high in the past two sessions, but broadly heavier greenback saw it cut the rate today. It was set at CNY6.8593, a new three-year low (CNY6.8657 yesterday and CNY6.8854 last Tuesday).

• Indian markets were closed for a national holiday today.

Other Markets

• Equities are higher today. Japan’s Nikkei, Taiwan’s Taiex, and South Korea’s Kospi rallied more than 2% today. Even Singapore’s Strait Times advanced despite the Monetary Authority of Singapore tightening policy. New Zealand and the Philippines were notable exceptions, unable to make headway. Europe’s Stoxx 600 is about 0.60% higher after slipping about 0.15% yesterday. US index futures are firm, with Nasdaq futures up about 0.35%.

• Benchmark 10-year yields are lower. The 10-year JGB yield fell nearly four basis points, encouraged in part by the strongest reception to the 20-year bond auction since 2019. European yields are mostly 3-6 bp lower. The 10-year US Treasury yield is off a little more than one basis point to 4.28%.

• Gold has extended yesterday’s recovery. It approached $4800 today. It has not settled above there since March 19. Silver is trading near its best level since March 18.

• May WTI peaked yesterday near $105.65 and settled near $99. It has fallen to almost $95 today, near last Thursday and Friday’s lows.

Data

• US March producer prices are expected to have jumped 1.1% in March after a 0.7% increase in February. That would lift the headline pace to 4.6% from 3.4%. As we saw in with last week’s CPI, the core rate is expected to be more subdued. The median forecast in Bloomberg’s survey is for a 0.4% month-over-month increase (0.5% in February) for a 4.1% rise year-over-year (3.9% in February). Several Fed officials speak throughout the day (Goolsbee, Barr, Paulson, Collins, and Barkin).

• Japan confirmed that after industrial output surged 4.3% in January, the most since June 2022, it pulled back 2.0% in February. The year-over-year rate is at 0.4%. It has not been above 1% since last September. Japan’s economy grew by 1.3% at an annualized pace in Q4 25 and looks to have expanded by around the same pace in Q1 26. It will not be reported until May 19. The swaps market is discounting about 35% chance of a rate hike later this month. It was closer to 55% before the weekend. BOJ Governor Ueda is in Washington this week. His comments, read by a deputy yesterday, seemed to emphasize the uncertainty injected by the Middle East war. It was far shy of clear signal, which the market expects before a hike.

• China reported a trade surplus half of what was expected in Bloomberg’s survey. The $51.1 bln March trade surplus compares with $91 bln in February and almost $102 bln in March 2025. That means that that Q1 surplus was almost $265 bln. The surplus in Q1 25 was about $271 bln. In dollar terms, exports rose 2.5% year-over-year, while imports rose by 27.8%. Beijing reports Q1 GDP at the end of the week. The median forecast in Bloomberg’s survey is for a 1.4% quarter-over-quarter increase in output, up from 1.2% in Q4 25. The much smaller than expected trade surplus could signal weaker growth.

Disclaimer

Restrained Risk-Off

noreply@blogger.com (Marc Chandler) — Mon, 13 Apr 2026 06:43:00 -0400

The collapse of US-Iran negotiations and the US threat to blockage Iranian ports presents an escalation in the conflict that the market’s did not anticipate. Equities and bonds are lower, and the dollar is mostly firmer. However, so far, the moves appear restrained. Iranian oil has largely been shipped to China and with the Trump-Xi meeting in a month, the blockade could jeopardize it. Moreover, the risk of escalation is palpable as Iran and its allies could try to close the Bab-el-Mandeb strait, which would be an additional disruption and neutralize the Saudi east-west pipeline that bypasses the Strait of Hormuz.

Hungary’s Orban saw a stunning defeat in the weekend election and the Hungarian forint is the strongest currency in the world today. It is up nearly 2% against the US dollar and around 2.3% against the euro amid speculation that Budapest’s pariah status in Europe will end and it will take steps to free up EU funds.

Prices

G10

• The euro rose to almost $1.1740 before the weekend, its best level since March 2, when the market first responded to the start of the Middle East War. It was the culmination of a five-day rally, and the euro settled slightly below $1.1725. The failed negotiation and the US blockade of Iranian ports caught the short-term market leaning the wrong way. The euro slipped slightly below $1.1660 almost immediately when the markets opened earlier today. It gradually recovered to $1.1700 as European markets opened, where it has consolidated above $1.1680.

• The greenback finished firmly against the yen ahead of the weekend. It has spent much of the previous two sessions below the 20-day moving average but settle above it before the weekend (~JPY159.20). Still, the dollar’s second consecutive weekly fall, the first back-to-back weekly decline since the end of January, would seem to reduce the risk of near-term intervention. The dollar extended its gains to JPY159.85 in early dealings today. It has been confined to a narrow range so far and has held above JPY159.55. Options for about $650 mln at JPY159.50 expire today.

• Sterling settled near $1.3460 last week, its highest close since the Middle East war began. The nearly 2% gain was its second-best week of the year. The disappointing weekend developments pushed sterling to almost $1.3380 in early trading today but recovered to almost $1.3435 but may struggle to extend gains much further. Options for GBP450 mln that expire today at $1.3545 may help cap it.

• The US dollar initially extended its losses for a fifth consecutive session against the Canadian dollar. It nicked the CAD1.3800 and traded below the 20- and 200-day moving averages in North America ahead of the weekend before recovering. The recovery stalled near CAD1.3840 before the weekend. The gains were quickly extended in early Asia Pacific activity today, to almost CAD1.3880. Options for $900 mln at CAD1.39 expire today. This month’s high was near CAD1.3950.

• The Australian dollar consolidated ahead of the weekend. It held below Thursday’s high ($0.7095) by 1/100 of a cent according to Bloomberg. The session low, near $0.7055, was recorded in the European morning. The Aussie’s ~2.5% gain last week was its largest since late January. Yet the Aussie gapped lower today in thin early turnover. It fell to nearly $0.6985 before finding bids. It recovered and filled the opening gap that extended to pre-weekend low. Options for A$711 mln at $0.7050 expire today. The intraday momentum indicators warn of the risk of a setback toward $0.7020.

• The Mexican peso has a five-day advance coming into today’s session. It appreciated by about 3.3% last week and reached its best level since March 2. The dollar knocked on MXN17.25 before the weekend. It settled near MXN17.2270 before the war. It was the strongest in the region last week. The Brazilian real gained 2.7% and it rose to the best level since early 2024 (US dollar fell a little below BRL5.01). The Colombian peso eked out less than 0.5% gain but it was sufficient to reach its best level since early February (US dollar fell slightly through COP3625). However, the risk-off mood will likely snap the Mexican peso’s five-day run. Because the peso is among the nearest emerging market to 24-hour a day activity, it is used as a proxy sometime for less accessible emerging market currencies. The dollar reached almost MXN17.4450 initially today but has ground down to nearly MXN17.3650 in European turnover. The intraday momentum indicators are getting stretched. Nearby support is seen ahead of MXN17.35.

• The yuan finished last week on a firm note. The greenback approached but held above the multiyear low recorded in the middle of last week (CNH6.82). The greenback was bid initially today and traded slightly above CNH6.8435. However, it has trended lower and is knocking on CNH6.83 in the European morning. The PBOC has been guiding the yuan higher through the daily fix. The broad dollar gains made it unlikely that it would do so today. The dollar’s reference rate was set today at CNY6.8657 (CNY6.8654 before the weekend).

• The jump in crude oil prices weighed on the Indian rupee and offset some of the gains that had been spurred by the recent currency controls. The dollar settled near INR92.73 at the end of last week and gapped higher today to reach almost INR93.41, its highest level since April 2. India reported March CPI rose to 3.40% from 3.21% in February. It is the highest since last March. A national holiday closes Indian markets tomorrow.

Other Markets

• Equities are mostly lower today, though there were some notable exceptions in the Asia Pacific region, where China, Taiwan, and some smaller bourses gained. The MSCI Asia Pacific Index rose 6% last week and snapped a five-week drop. Europe’s Stoxx 600 is off about 0.75% today. It rose by 3% last week, its third week advance. US index futures are trading 0.5%-0.6% lower. Last week, the S&P 500 rose by 3.5% and the Nasdaq gained nearly 4.7%.

• Benchmark 10-year yields are firmer today. They rose five basis points in the Australia and New Zealand, and two basis points in Japan. European yields are mostly 1-2 bp higher, and the 10-year US Treasury yield is almost two basis points higher to poke above 4.33%.

• Gold gapped lower and fell to $4644.50 before recovering and filled the gap that extended to the pre-weekend low near $4731. It stalled slightly shy of $4740. Silver also gapped lower and filled the opening gap before being capped in front of $75.

• May WTI gapped higher. The pre-weekend high was near $100.40 and today’s low has been about $101.90. It reached nearly $105.65 and is around $104.40 in late European morning turnover.

Data

• Ahead of tomorrow’s March PPI and Wednesday’s Beige Book, the US sees March existing home sales today. They tend not to move the markets. Existing home sales have been flattish for the last couple of years in the trough after pandemic-related surge in 2020. The three, six, and 12-month moving averages have converged between 4.07 and 4.13 mln sales (seasonally adjusted annual rate).

• Canada reports building permits today, but more importantly, Canada holds three byelections that will likely secure a parliamentary majority for Prime Minister Carney’s Liberals. With the latest defection, the Liberals are one seat shy of a majority and are favored to win at least two of the byelection contests.

• China’s March lending figures were weaker than expected. Aggregate financial rose by CNY5.2 trillion and the median forecast in Bloomberg’s survey looked for a CNY5.6 trillion increase. Corporate bond issuance increased and helped offset the decline in government bond sales. Tomorrow, China is expected to report the March trade figures, and the surplus is expected to have risen to around $107.5 bln from nearly $91 bln in February.

• India reported a small increase in March CPI to 3.40% from 3.21%. The World Bank expects inflation to rise to 4.9% in the fiscal year that began on April 1. Before the Middle East war, the World Bank’s forecast was 4.0%. It sees growth slowing to 6.5% from around 7.2% in the fiscal year that just ended. The Reserve Bank of India projects 6.9% growth this year and 4.6% CPI.

Disclaimer

Week Ahead: Hope Springs Eternal

noreply@blogger.com (Marc Chandler) — Sat, 11 Apr 2026 07:15:00 -0400

Hope that the ceasefire will lead to the end of the Middle East war fanned risk appetites in recent days. Equities rallied broadly. May WTI and June Brent fell by nearly 11.5%. The dollar fell against all the G10 currencies, the Antipodeans and Scandis, which seem the most sensitive to growth prospects and the risk environment. The JP Morgan Emerging Market Currency Index rose by a little more than 2%, to post its best week since March 2018.

Negotiations will take place over the weekend, and market participants are hopeful that this can lead to a more sustained end to hostilities. Of course, it is complicated by the lack of trust and the Israel-Lebanon conflict. Ceasefires are hardly immaculate. Meanwhile, we may be on the cusp of two other watersheds. First, there have been encouraging reports about a potential agreement between Russia and Ukraine. Second, Hungary’s Viktor Orban is the long-serving prime minister in the EU. He has served for the past 16 years and had previous term between 1998 and 2002. Polls suggest he could lose the popular vote on April 12.

Drivers: The two-week ceasefire in Middle East war reset the dollar and interest rate expectations. The dollar rallied during the war and was sold on the ceasefire. The derivatives market sees the Federal Reserve as the most dovish of the major central banks and the odds of a cut this year have risen to around 33% from briefly discounting a small chance of a hike.

Data: The US has a full slate of high frequency reports in the coming days. We suspect most will have limited impact on the markets. Yet given the desire for real time insight into the impact of the war, the Empire State survey and the Philadelphia Fed's survey may be the most important. The Fed's Beige Book and its anecdotal reports may also serve this purpose, though practically no one doubts that the FOMC will stand pat when it meets later this month.

Prices: The Dollar Index gapped lower in the middle of last week. That gap, found between about 99.18 and 99.51 is important from a technical perspective. It found support around the 200-day moving average, found near 98.50. The momentum indicators have turned down, and the five-day moving average has fallen below the 20-day moving average for the first time since February 18. We look for the 97.50 area in the coming days.

EMU

Drivers: The euro bottomed in the middle of March, but the upside seemed stalled until the ceasefire was announced. Expectations for ECB rate hikes this year were pared from at least three hikes to two with about 40% chance of a third. The US two-year premium over Germany was around 138 bp before the war and it collapsed to about 108 bp as President Trump threatened to destroy Iran. The ceasefire announcement saw it recover to almost 130 bp and it finished last week near 123 bp.

Data: With several large members already reporting national figures for February industrial output (Germany 0.5%, France -0.7%, Spain 0.2%) the aggregate figure will likely not draw much attention. The same could said about the aggregate trade and current account figures. The median forecast in Bloomberg's survey of 0.3% growth in Q1 and Q2 this year seems a little exaggerated. Last month ECB projections saw growth at 0.9% this year and the current account surplus 1.7% of GDP (1.9% in 2025), with a larger budget deficit (3.4% of GDP vs. 3.0% in 2025).

Prices: The euro appears to have forged a solid base in the second half of March. The consolidation of the past couple of sessions looks constructive. The five-day moving average is above the 20-day moving average and the momentum indicators give the single currency scope for additional near-term gains. Nearby resistance is seen around $1.1745-50, but we suspect there may be initial potential toward $1.1825, the high from the last day in February, before the war began. Potential for a breakthrough in negotiations between Russia and Ukraine and a defeat of Hungary's Orban would seem supportive of the euro.

PRC

Drivers: Beijing continues to endorse the appreciation of the yuan. Last week, the PBOC set the dollar's reference rate at its lowest level in three years. The fix was lowered last week by about 0.30%, the largest weekly decline in two months.

Data: By the end of the week ahead, we will have been told Beijing's estimate of Q1 GDP and the macro details for March, including trade, retail sales, industrial production, investment, and house prices. The median forecast in Bloomberg's survey is that the economy grew at a slightly faster pace in Q1 than it did in Q4 25 (1.2%).

Prices: Ahead of the weekend, the dollar posted its lowest close against the offshore yuan since March 2023. A break of CNH6.8200 could signal a move toward CNH6.80 but there is potential toward the 20203 low, which was slightly below CNH6.70. It is difficult to know the intent of Chinese officials, but they have embraced the gradual appreciation of the yuan. We suspect a move to CNY6.60-CNY6.70 may be acceptable.

Japan

Drivers: The 30-day correlation between changes in the dollar-yen exchange rate and the 10-year US yield continues to hover above 0.60, the highest since last September. It bottomed in early February a little below 0.15, which was the lowest since last May. The 30-day correlation of changes in the dollar-yen exchange rate and the Dollar Index is a little above 0.75. At the end of February was near 0.73 but fell below 60 in mid-March. It has not been above 0.80 since last October.

Data: After a 4.3% month-over-month surge in Japan's industrial production in January, a monster of a gain, the largest since June 2022, it slowed by almost half in February. It is subject to revision in the week ahead. While the Japanese economy seems sufficiently strong and price pressures sufficiently persistent for the Bank of Japan to hike later this month, one more worrisome development has been the weakness in private sector machinery orders (capex). They fell by 5.5% in January. The February report is due on April 15.

Prices: The market tested the JPY160 level early last week and the news of the ceasefire saw the dollar come off to support near JPY158.00. The market does not appear to have given up on probing for the pain threshold of Japanese officials, though the daily momentum indicators are falling and the five-day moving average in threatening to fall through the 20-day moving average for the first time since February 20. That said, a convincing break of JPY157.50 would suggest a high is in place.

Drivers: Sterling continues to trade inversely to the Dollar Index. The 30-day rolling correlation of the changes of the two instruments is almost -0.87. It has not been much more extreme than this since early Q4 25. The correlation between the exchange rate and changes in two-year US and UK yields stands around -0.35 and -0.10, respectively. Meanwhile, the correlation between changes in sterling and the US S&P 500 (risk proxy) is a little below 0.57. This is the upper end of the range since late 2022.

Data: At the end of the week, the UK reports February GDP and details. Even though the monthly figures do not translate into quarterly reports as one might intuitively expect, the market is often sensitive to them. January GDP unexpectedly stagnated (median forecast in Bloomberg's survey was 0.2%). Another disappointment would likely spark sterling sales and a reconsideration of the likely trajectory of BOE. The central bank projects 0.9% growth this year and the Office for Budget Responsibility forecasts 1.1%. This may also prove to be optimistic.

Prices: Ahead of the weekend, sterling settled at its best level since the war began. Yet it did not make it above the intraday March highs (~$1.3480-85). The momentum indicators are constructive, and the five-day moving average pushed above the 20-day moving average. Above the March highs is the $1.3515 area, which is the halfway mark of the losses since the January 27 four-year high was reached (~$1.3670). A note of caution is that the upper Bollinger Band is slightly below $1.3500.

Canada

Drivers: Around mid-March, the 30-day correlation of changes in the US dollar-Canadian dollar exchange rate and the Dollar Index rose above 0.85, its highest since mid-2024. It is now near 0.65, which is still at the upper end of last year's range. The correlation between changes in the exchange rate and the S&P 500 is around -0.28, while the correlation with changes in the US two-year yield is slightly lower, though near the highs since last October.

Data: Canada housing data does not capture the market's attention, but the international transactions may a somewhat different matter. After a weak H1 25, foreign demand for Canada's stocks and bonds picked up in H2 25 and continued into January. In fact, January's portfolio capital inflows were more than twice the Q4 25 average. On the other hand, the trade balance may be deteriorating. The Jan-Feb deficit of almost C$10 bln is among the largest Canada has ever recorded and the rolling 12-month averaged shortfall of C$3.675 bln is a record.

Prices: Before the weekend, and despite milquetoast jobs report that saw full time jobs were lost for the second consecutive month, the Canadian dollar rose to its best level in nearly two and a half weeks. The greenback was pushed below CAD1.38 and settled below the 20- and 200-day moving averages, which converged around CAD1.3820. The momentum indicators have turned down. The next target is around CAD1.3750, and then possibly CAD1.37.

Australia

Drivers: Changes in the Australian dollar and the Dollar Index are the most inversely correlated (30-days) since last October (~-0.78). The correlation between the exchange rate and the S&P 600 is around 0.64, which is off the peak seen last month near 0.73. Last year's high was closer to 0.87. The Aussie's correlation with gold peaked in February a little above 0.80. It fell to almost 0.30 in March before recovering to almost 0.50 now.

Data: At the end of the week, Australia reports March jobs data. In February, the almost 49k increase in employment was fueled exclusively by part-time positions. There were 30.5k fewer full-time jobs. However, that came after two solid months in which full-time posts rose by nearly 110k. The unemployment rate is 4.3%. It has spent only one month higher since the end of 2021 and that was the anomalous jump to 4.5% last September and a return to 4.3% in October. The Reserve Bank of Australia meets next on May 5. The futures market has about a 65% chance of a hike. We wonder if three hikes in a row are a bit aggressive given the hornet's nest that has been opened by the Middle East war.

Prices: The Australian dollar is knocking on the $0.7100 area, which it last traded above on March 19. Following the second rate hike of the year, the Aussie reached slightly beyond $0.7185 on March 13, its best level since mid-2022. The momentum indicators have turned higher from oversold, and the five-day moving average crossed back above the 20-day moving average last week, Initial resistance above $0.7100 is seen near $0.7125.

Mexico

Drivers: The Mexican peso is sensitive to the US dollar's broad direction. The rolling 30-day correlation of changes in the USD-peso exchange rate and the Dollar Index is above 0.75 for the first time since last October, which also marked the high in 2025. Yet the peso is also sensitive to the risk environment. Using the S&P 500 as the proxy, the USD-peso exchange rate is inversely correlated to changes in the S&P 500 by almost 0.80, the most extreme since July 2020. The correlation between changes in the exchange rate and US two-year yields is near 0.45, the highest since last September.

Data: While keeping in mind the large informal economy in Mexico, which accounts for a little over half of the workforce according to some estimates, nominal wage increases have been trending lower. The March figures are due this week. The rolling six-month moving average was slightly above 6.35% in February, the smallest since Q1 22.

Prices: The Mexican peso appreciated by about 3.3% against the US dollar last week. That is its best weekly showing since September 2024.The dollar settled near MXN17.2270 on the eve of the Middle East war and peaked in late March around MXN18.1645, slightly shy of the 200-day moving average. At the end of last week, it tested the MXN17.25 area, the lowest since March 2.The momentum indicators are falling and the five-day moving average fell below the 20-day moving average last week for the first time since early March. However, the move has taken place so quickly that the greenback has settled for the past three sessions below the lower Bollinger Band (~MXN17.36 before the weekend).

Disclaimer

G10 Currency Consolidation Looks Constructive, but the Weekend Poses Risks

noreply@blogger.com (Marc Chandler) — Fri, 10 Apr 2026 06:49:00 -0400

The dollar is mixed against the G10 currencies today, ahead of the March US CPI report. The dollar bloc and the Japanese yen are struggling. However, the tone is mostly consolidative. Equities were higher in the Asia Pacific region, with a few exceptions, and in Europe. Bond yields are firmer. Both WTI and Brent crude oil are trading with a slightly firmer bias but well within this week’s ranges.

US and Iranian officials will meet in Pakistan tomorrow. The ceasefire apparently seen some violations and the Strait of Hormuz is not fully open as it was before the war. Yet market participants seem hopeful. At the same time, reports suggest Ukraine and Russia may be near a tentative agreement to stop hostilities. Meanwhile, reports suggest the Federal Reserve Powell and Treasury Secretary Bessent met with the large banks to discuss new risks generated by AI. Hungary goes to the polls this weekend and Prime Minister Orban is lagging in the polls. He is liked by the Trump administration (though its support may have cost him) and Russia and China. Still, the Hungarian forint is second strongest emerging market currency this week (~3.6%), lagging behind the Russian ruble’s 3.7% appreciation.

Prices

G10

• The euro traded in the upper end of Wednesday’s trading range yesterday and again stalled in front of $1.1725. It is consolidating mostly between $1.1680 and slightly above $1.1715 so far today. The price action looks constructive. The next technical target is $1.1745-50. It has a four-day advancing streak coming into today, which matches the longest of the year.

• The dollar traded firmly against the yen yesterday but could not resurface above JPY159.30. It has edged slightly higher today but is holding below JPY159.40. $780 mln of options at JPY159.50 expire today. The greenback settled slightly above JPY159.65 last week. If the dollar does not recover and settle above it today, it will be the first back-to-back losing weeks for the dollar since the end of January.

• Sterling consolidated in the upper end of Wednesday’s range yesterday. It hardly spent any time below Wednesday’s $1.3395 settlement. Sterling has held above $1.3400 today, where options for GBP355 mln expire today. On the other hand, it is holding below yesterday’s high (~$1.3460). Wednesday’s high was almost $1.3485, its best level since the war began.

• The Canadian dollar strengthened to its best level in a little more than two weeks yesterday. The greenback was sold to almost CAD1.3800. It frayed the 20- and 200-day moving averages (~CAD1.3815-20) on an intraday basis but settled above them. The US dollar is trading firmly and reached almost CAD1.3845 today. Options for nearly $600 mln at CAD!.3850 expire today.

• The Australian dollar reached a three-week high yesterday, a little shy of $.7100. At the end of March, it fell below $0.6840. The five-day moving average crossed above the 20-day moving average yesterday for the first time since mid-March. It is trading with a slightly softer bias today and is consolidating between about $0.7055 and $0.7085. A band of nearby resistance extends toward $0.7125.

• The Mexican peso extended its recovery and has recovered the lion’s share of last month’s losses. The US dollar finished February near MXN17.2270. Yesterday’s losses took the greenback a little through MXN17.3250. It is in roughly a MXN17.3450-MXN17.4045 range today. The dollar peaked on March 31 near MXN18.1650. It posted a key downside reversal that day and has not looked back.

• The dollar drew closer to the next important support area against the offshore yuan near CNH6.80 yesterday. It reached CNH6.8200 on Wednesday, a three-year low and consolidated above it yesterday. Since Wednesday’s low, the greenback has not been above CNH6.8420. Today, it has not been above CNH6.8345. The PBOC set the dollar’s reference rate at CNY6.8654 (CNY6.8649 yesterday, a three-year low). The low fix in 2023 was around CNY6.7130.

• It appears that the Indian currency controls introduced recently have run their course. The US dollar briefly traded to a marginal new low since March 18 today (~INR92.4115) but recovered to almost INR92.7665. Still, the rupee managed to hold on to a 0.40% increase for the week.

Other Markets

• Asia Pacific and European equities have traded firmer today. Most of the large bourses in the Asia Pacific region rose by at least 1% today, though Hong Kong’s Hang Seng was an exception (+0.55%) as was Australia (-0.15%) and New Zealand (-0.70%). Europe’s Stoxx 600 is up around 0.60% in late morning turnover. If the gains are maintained, it would be the second consecutive week that it rose more than 3%. US index futures are hovering around little changed levels. The S&P 500 is up about 3.6% this week and the Nasdaq is up about 4.3%.

• Benchmark 10-year yields have jumped today. Australia and Japan’s rates rose a little more than five basis points. European yields are 4-8 bp higher. The 10-year US Treasury yield is up almost two basis points to approach 4.30%. It is off a little more than three basis points on the week.

• Gold is trading slightly heavier today but within yesterday’s range (~$4699-$4801). Silver is consolidating between about $74.85 and $76.20. Both metals are up for the third consecutive week.

• May WTI is firm but quiet. It is near $99 in late European morning activity. It reached $102.70 yesterday and is holding below $100.50 today. The month’s low was recorded on Wednesday, near $91. Today’s low is near $97.60.

Data

• The reaction to the expected surge in the March US CPI will be tempered by the ceasefire. The median forecast in Bloomberg’s survey is for a 1% rise in CPI last month, which would lift the year-over-year pace to 3.4% from 2.4%. The core is seen rising by 0.3% for a 2.7% year-over-year increase. If the ceasefire holds and leads to an end to the conflict, there still may be some residual upward pressure on CPI in April. The ceasefire comes too late to lower inflation expectations in the preliminary April University of Michigan survey. The preliminary durable goods orders (-1.4% headline and +0.6% excluding defense and aircraft orders removes so interest from today’s factory goods orders and revision to the durable goods report. Lastly, the March federal budget deficit is due and the median forecast in Bloomberg’s survey is for a shortfall of about $152.5 bln. This compares to $160.5 bln deficit in March 2025 and $236.6 bln deficit in March 2024.

• After losing almost 84k jobs in February (-108.4k full-time positions were lost and part-time jobs rose by 24.5k), Canada is expected to report muted recovery with a gain of about 15k jobs overall. The participation rate may have ticked up to 65.0% from 64.9%, and this will likely be translated into a rise in the unemployment rate to 6.8% from 6.7%.

• Mexico reports February industrial production figures today. After falling 1.1% in January, it is expected to have recovered by about 0.6%. Still, the year-over-year pace of both industrial output and manufacturing production are still falling on a year-over-year basis (-1.0% and -1.8% respectively), which appears to be a greater concern to the central bank than inflation, which we learned yesterday, remained above the 2-4% target range last month.

• Japan reported a 0.8% jump in March producer prices. The February series was revised to 0.1% from -0.1%. Given the base effect, this increased the year-over-year rate more modestly to 2.6% from a revised 2.1% (initially 2.0%), which is the highest since last November. Separately, Japan reported a 28.1% year-over-year jump in machine tool orders (24.2% in February). Foreign orders surged 40.4%, while domestic orders rose 2.5%. The market has wavered a bit, but we continue to suspect that there is a better chance that the Bank of Japan lifts rates later this month than it standing pat.

• China reported PPI rose 0.5% in March, its first year-over-year increase since September 2022. Deflationary forces have been slackening since the middle of last year when PPI fell 3.6% year-over-year. Since then, with one exception, deflation in producer prices has moderated. The CPI is 1.0% higher than a year ago (1.3% in February). Previously, many observers had attributed the weakness in CPI to weak demand. We have been more skeptical. Consumption has risen in China, but investment has increased quicker, and food prices, for which demand is more inelastic, seemed to be a key factor. Consider that the slippage in March seemed to reflect the moderation in food price increases (0.3%) after 1.7% in February. Also, housing prices fell for the fourth consecutive month. Core CPI finished 2025 at 1.2% and rose to 1.8% in February. It moderated to 1.1% in March.

Disclaimer

Rough Start to Ceasefire Curbs Yesterday's Enthusiasm

noreply@blogger.com (Marc Chandler) — Thu, 9 Apr 2026 06:46:00 -0400

It seemed clear that yesterday’s euphoric reaction to the two-week ceasefire was exaggerated. Ceasefires often have been plagued with disputes and violations at the start. This one is no different. At the same time, Israel’s action in Lebanon complicates the situation and there is some dispute whether it was covered by the ceasefire. President Trump has suggested that perhaps the US participates in the toll collection for the Strait of Hormuz.

Equities have seen yesterday’s surge pared. Benchmark 10-year bond yields are mostly firmer. The greenback has been largely confined to narrow ranges against the G10 currencies. Most are a little firmer, but not the Australian and Canadian dollars and Japanese yen. The JP Morgan Emerging Market Currency Index is practically flat. Drawing very little attention, the PBOC set the dollar’s fix at a new three-year low for the third consecutive session.

Prices

G10

• The euro poked a little above $1.1720 in North America yesterday, a modest extension of the rally seen in the Asia Pacific session in response to the ceasefire. After the high was recorded, the euro slipped back to around $1.1645, which was below the low seen in Europe. It recovered and settled near $1.1665. It has been confined to about a 15-tick band around yesterday’s settlement.

• The dollar fell by about 0.55% against the yen yesterday. It traded below JPY158 for the first time in two weeks but recovered to settle about JPY158.55, which was a little above the high seen during the European session. It has hardly traded below there today and is straddling the JPY159 area in late European morning turnover. Options for about $670 mln at JPY159 expire today.

• Sterling dipped below $1.3180 at the start of the week, and at yesterday’s peak, it had risen by slightly more than three cents to its best level in a month. It briefly pushed above the upper Bollinger Band (~$1.3465 today) for the first time since late January. Sterling pulled back to a around $1.3380 in the North American afternoon and settled around $1. 3395. It is in a $1.3380-$1.3415 range today.

• The US dollar recorded the session low yesterday against the Canadian dollar in the Asia Pacific session near CAD1.3825. It recovered to CAD1.3875 late in the European morning and consolidated in quiet though choppy activity in North America. The greenback is trading quietly today between about CAD!.3840 and CAD1.3860. Options for about $360 mln at CAD1.3890 expire today. A break of the CAD1.3800 area could see CAD1.3750 next.

• The Australian dollar reached $0.7085 in the initial reaction to the ceasefire news and spent the rest of yesterday consolidating above $0.7030. It hovered around the $0.7050 area for most of the North American session. It has held above $0.7020 but below $0.7050, where options for a little more than A$1.35 bln expire today. It entered today’s with a three-day 2.3% advance in today.

• The Mexican peso rallied 1.5% yesterday. The greenback was sold to MXN17.36, its lowest level since March 3 and settled around MXN17.44. It had settled around MXN17.2270 before the war began. The dollar is trading quietly today and is little changed around MXN17.44-45 in late European morning turnover and has held below MXN17.50. The Mexican peso was stronger than the Colombian peso yesterday. But the greenback is weaker against the Colombian peso now than it was before the war started. The same is true of the Brazilian real. On February 27, the dollar settled near BRL5.1160, its lowest level since May 2024. Yesterday, the greenback gapped sharply lower and saw BRL5.0655. It closed near BRL5.0970 yesterday.

• The offshore yuan reached its best level since February 2023 yesterday. The dollar tested CNH6.82. It is consolidating in a narrow range today (~CNH6.8310-CNH6.8415). The low in 2023 was a little below CNH6.70. The PBOC set the dollar’s reference rate lower for the third consecutive session, and each one is a new low since April 2023. Today’s fix was set at CNY6.8649. Last Thursday, it was set at CNY6.8880.

• The dollar rose to INR92.9375 today, which filled the gap created by yesterday’s sharply lower opening. For the first time since the Middle East war began, the five-day moving average has crossed below the 20-day moving average. However, rather than signal a new downtrend, the crossing moving averages reflect the short squeeze that was triggered by the central bank’s currency restrictions on Indian banks.

Other Markets

• Equities are seeing yesterday’s sharp gains pared. Most of the equity markets in the Asia Pacific region fell, with the notable exceptions of the Antipodean and Taiwan’s markets. Europe’s Stoxx 600 rose almost 3.9% yesterday and has given back around 0.65% today. US indices rose 2.5%-2.8% yesterday and are off around 0.25%-0.35%

• Benchmark 10-year yields have recouped some of yesterday’s decline. The JGB yields edged up 1.5% bp, while Australia and New Zealand yields rose 5-7 bp. European benchmark yields are mostly 4-7 bp higher. The 10-year US Treasury yield is softer, slightly below 4.29%.

• Gold is firm near $4730 in Europe, and well off yesterday’s high (almost $4857). Silver is little changed as it hovers around $74.

• May WTI hit almost $91 yesterday and settled near $94.40. It is making session highs in late European morning turnover near $98.60. The 20-day moving average is around $99.25.

Data

• Usually, the US personal income, consumption data and the deflators would be the focus today. However, the February deflator readings are old as they cover the period before the Middle East war and the March CPI will be reported tomorrow. The optics of the consumption data will be better than the substance. Adjusting for inflation will keep real consumption expenditures hovering around the three-month average of 0.1%. The Atlanta Fed’s GDP tracker sese Q1 GDP at 1.3%. The median forecast in Bloomberg’s survey is more optimistic at 2.3%.

• Mexico reports March CPI today. It is likely to have accelerated further above the upper end of the 2-4% target range. The headline rate is seen rising to4.65% (from 4.02%) and the core rate may continue to hover near 4.50%. With inflation above target last month, the central bank not only cut rates but signaled it may do so again. Officials are clearly concerned about growth, and the record of last month’s meeting may offer insight into official thinking. Mexico will also report March vehicle production and exports. The data tends not to have much market impact, but it is noteworthy, that Mexico exports almost 80% of its output. Proportionately, that is around four times China vehicle exports.

• Germany reported February trade and industrial output figures earlier today. The trade surplus narrowed to 19.8 bln euros from 20.3 bln in January, but it stood at 17.7 bln in February 2025. Exports rose 3.6% on the month (-1.5% in January), while imports rose 4.7% (-5.1% in January). Industrial production fell by 0.3% in February, before the new energy shock. The median forecast in Bloomberg’s survey anticipated a 0.7% increase. Part of the sting was lessened by the upward revision in January’s reading from -0.5% to flat.

• China reports March PPI and CPI first thing tomorrow. The median forecast in Bloomberg’s survey is for PPI to have risen by 0.4% year-over-year. If so, that would be the first increase since September 2022. Consumer prices rose 1.3% year-over-year in February, the strongest since January 2023. It may have slowed slightly in March. Note that the core CPI, excluding food and energy, rose 1.8% in February, the strongest since early 2019.

Disclaimer

Ceasefire Lifts Animal Spirits

noreply@blogger.com (Marc Chandler) — Wed, 8 Apr 2026 06:49:00 -0400

Risk appetites have been excited by the two-week cease fire in the Middle East. Stocks and bonds have rallied strongly. The precious metals are higher. May WTI is off more than 15%. June Brent is about 13% lower. The US dollar is weaker against all the G10 and emerging market currencies that are trading. The ceasefire is overwhelming other developments including the central banks in New Zealand and India standing pat.

Global investors have responded to the news, and that may leave North American participants in an awkward position. They will be greeted with large moves and may be reluctant to substantially extend the moves without seeing further developments.

Prices

G10

• Hope of a last-minute deal helped lift the euro to $1.1605 in North America yesterday, a three-day high. When the two-week ceasefire was announced, the euro soared a little through $1.1690 in thin trading and then made a new high in late Asia Pacific turnover near $1.1710. It pushed above the 200-day moving average (~$1.1675) for the first time since March 2. It also met the (38.2%) retracement of the losses since the high was reached in late January (~$1.2080 near $1.1665. The next retracement is near $1.1745.

• The dollar edged higher against the Japanese yen yesterday and traded briefly and barely above JPY160 for the first time in six sessions. Options for $1.1 bln expire there today. When the ceasefire was announced, the dollar was sold to JPY158.55 and then made a secondary low below last week’s low (~JPY58.30) to approach JPY158, where options for $600 mln expire today. A convincing break could see JPY157.35.

• Sterling rose to a three-day high to poke above $1.3300. The ceasefire announcement saw it surge to almost $1.3410. The gains were extended to $1.3445 to rise above the 200-day moving average (~$1.3415). The $1.3430 area represents the (38.2%) retracement target of the slide since the multiyear high was recovered in late January (~$1.3870). The next retracement is near $1.3515.

• The US dollar was sold to three-day lows against the Canadian dollar late in North America yesterday. It reached CAD1.3885. Then it was sold to around CAD1.3835 in immediate reaction to the ceasefire. It ultimately bottomed near CAD1.3825 and recovered to CAD1.3870 in Europe. The CAD1.3800 area is more important. It houses the 20- and 200-day moving average and the (38.2%) retracement of the rally since the March 9 low (~CAD1.3525).

• The Australian dollar rose to almost $0.6975 yesterday, its highest level since March 24. The ceasefire announcement sent to sharply higher. It reached $0.7085 and surpassed the (61.8%) retracement of the losses since the high on March 11 (~$0.7185). The $0.7100-25 area may be the next technical hurdle. It pulled back to around $0.7035 in the European morning but looks poised to recover in North America.

• The dollar bled lower against the Mexican peso yesterday. It fell to about MXN17.6835, its lowest level since March 19. It settled on its lows and tumbled to about MXN17.4930 in the initial response to the risk-on mood spurred by the ceasefire announcement. It continued to grind lower and recorded the low near MXN17.4420 in European turnover. The next technical area of note is around MXN17.40.

• The offshore yuan rose to its best level since the Middle East war began yesterday. The dollar peaked last week around CNH6.9270 and yesterday fell to about CNH6.8535. The ceasefire announcement saw the greenback fall to the low recorded in late February around CNH6.8265. The greenback was then sold to about CNH6.8215, a new three-year low. The PBOC set the dollar’s reference rate at CNY6.8680, a new low since April 2023 (CNY6.8854 yesterday and CNY6.9025 last Wednesday).

• The Indian rupee strengthened for the fourth consecutive session today, matching the longest streak since last June. The dollar gapped lower. Today’s high was about INR92.6915. Yesterday’s low was ~INR92.8650. The dollar settled below the 20-day moving average (~INR92.9270) for the first time since the Middle East war began.

Other Markets

• Equities applauded the ceasefire. The large bourses in the Asia Pacific region jumped 3-6%. Europe’s Stoxx 600 is up 3.7% in late morning turnover. US index futures are trading 2.5%-3.5% better.

• Benchmark 10-year yields are sharply lower. European rates are mostly 13-25 bp lower and premiums over German Bunds have narrowed. The 10-year JGB yield eased four basis points to 2.35%. The 10-year US Treasury yield is off five basis points to about 4.24%.

• Gold rallied with risk assets and reached nearly $4857, its best level in around two and a half weeks. It is trading near $4785 late in the European morning. Silver rose to $77.65, which is also a two and a half week high. It is near $76.80.

• May WTI settled near $112.95 yesterday and dropped to almost $91. Although it has steadied, it remains well below the 20-day moving average (~$99) for the first time since the Middle East war began.

Data

• The Federal Reserve met last month, a couple of weeks into the Middle East war, and policy was left steady, as widely expected. A record of that meeting will be published today. The updated Summary of Economic Forecasts saw the median dot remain with one rate cut this year. There was only one dissent, Governor Miran, though many had thought there could be two other dissents. The market heard a hawkish spin by Chair Powell. The Fed funds futures strip currently reflects expectations that the central bank will most likely spend the year on the sidelines.

• The eurozone’s February producer prices fell by 0.7% in the month before the new supply shock hit. The year-over-year fell to -3.0% from -2.0%, the most deflation since October 2024. The year-over-year rate was last positive in July 2025. However, the consumer was already pulling back before the war began. Retail sales slipped by 0.2% in February, after easing by 0.1% in January. It is the first back-to-back decline since Oct-Nov 2024.

• After collapsing 11.1% in January, German factory orders rose a modest 0.9% in February. The median forecast in Bloomberg’s survey was for a 3.0% gain. The construction PMI rose to 48 in March from 43.7 in February. It averaged 46.1 in Q4 25 and 44.6 for all of 2025 (38.8 average in 2024).

• The UK’s construction sector’s downturn slow in March. The construction PMI rose to 45.6 from 44.5 in February. It has not been above 50 since the end of 2024. It averaged 41.2 in Q4 25 and 43.3 in all of 2025 (54.8 average in 2024).

• Higher wages do not automatically translate into stronger Japanese household consumption. Labor earnings adjusted for inflation rose 1.9% year-over-year in February, marred slightly by the downward to 0.7% in January from 1.3% initially. The Bank of Japan has emphasized wage increases, but it is still one step removed from consumption. Yet yesterday, Japan reported that February household spending fell 1.8% year-over-year and after falling 0.5% in February 2025 and February 2024. The Bank of Japan meets toward the end of the month, and the swaps market downgraded the chances of a hike to about 55% from almost 75% a week ago. Separately, and true to the strong seasonal pattern, Japan reported an improvement in its February current account (~JPY3.93 trillion vs. JPY31 bln in January). The trade balance swung back into surplus (~JPY268 bln vs. -JPY600 bln in January). The trade surplus in February 2025 was JPY730 bln. The undervalued yen does not automatically translate into a trade surplus. Indeed, on a balance-of-payments basis, Japan has recorded an annual trade deficit for the last four years.

• The Reserve Bank of New Zealand stood pat with its official cash rate at 2.25%. It was only the second meeting since July 2024 that the central bank has not cut rates. The easing cycle appears over, and the swaps market is discounting the first hike by the middle of the third quarter.

• As widely anticipated, the Reserve Bank of India kept its repo rate at 5.25%. It reduced its policy rate by 125 bp last year. Governor Malhotra said the recently announced currency market curbs are temporary. The swaps market is pricing in 50 bp hikes over the next six months, which seems exaggerated.

Disclaimer

On the Edge of the Abyss

noreply@blogger.com (Marc Chandler) — Tue, 7 Apr 2026 06:52:00 -0400

The dollar is mostly narrowly mixed against the G10 currencies. Leaving aside the Swedish krona, which has fallen nearly 0.75% on the back of an unexpected soft March CPI, the other G10 currencies are +/- less than 0.2%. Investors remain on edge ahead the US ultimatum deadline, which is in the Asia Pacific session today. There are mixed reports on how close the two sides are to a deal. It still seems binary, with a ceasefire being good for risk assets and an escalation, of course, not so much.

News has been light. Most of the final March PMIs were revised lower from the initial readings, though counter-intuitively the eurozone was an exception. China’s restraint remains notable. The PBOC set the dollar’s reference rate today at its lowest level since April 2023. Investors remain focused on the Middle East developments.

Prices

G10

• The euro reached slightly above $1.1570 in North America yesterday as hope of a ceasefire in the Middle East war seemed to peak. It made a marginal new high in European turnover today but stalled shy of $1.1580. It had been sold to about $1.1525 initially in the Asia Pacific session.

• The dollar closed little changed against the Japanese yen yesterday. The technical implication of the outside day was muted by settlement that was within the pre-weekend range. After initially falling to JPY159.30 late in the Asia Pacific session, the greenback returned to the session high, slightly above JPY159.80, but it met sellers as if they content to take profits in front of JPY160. In local trading today, the greenback edged a little closer to JPY160 before it was turned back to around JPY159.50. The JPY160 area remains of psychological importance and options for about $775 mln at JPY160 expire today and another $750 mln of options at JPY160.25 also expire.

• Sterling traded on both sides of last Friday’s range (~$1.3190-$1.3245) yesterday, but the close was within that range and that neutralized the technical signal. It was initially sold to about $1.3210 before it rebounded to almost $1.3285 in Europe. It appears stretched in front of $1.3300 where GBP330 mln of options expire today.

• The US dollar found support against the Canadian dollar yesterday and again today near CAD1.3900. Options for about $380 mln expire there today. It would take a break of the CAD1.3870 area to suggest a top is in place. Meanwhile, initial resistance is around CAD1.3950.

• The Australian dollar posted an outside up day. It traded on both sides of last Friday’s narrow range and settled slightly above its high. Follow-through buying today has been limited to the $0.6950 area ahead of the $0.6960-70 area that may offer a more formidable technical hurdle.

• The dollar recorded an outside down day against the Mexican peso. It traded on both sides of the narrow pre-weekend range and settled below its low. In fact, it settled below the 20-day moving average (~MXN17.8360) for the first time since the Middle East war began. Selling today push the greenback slightly below MXN17.71. That may mark the session low. Options for $770 mln at MXN17.75 expire today.

• The offshore yuan enjoyed a firmer tone yesterday, even though the mainland markets were closed. Still the greenback found support ahead of last week’s low (~CNH6.8710). But it cut through there today, and fell to CNH6.8570, its lowest level since the Middle East war began. It may have been encouraged by the PBOC which set the dollar’s reference rate at CNY6.8854, a new low since April 2023. The re-valuation campaign, which arguably began in April 2025, does not appear over.

• The Indian rupee traded quietly today. The dollar was confined to a narrow INR92.8650-INR93.07 range. The rupee remained firm as banks reduced short dollar positions, while oil importers were dollar buyers. The 20-day moving average is around INR92.9055, and the greenback has not settled below it since the war began.

Other Markets

• Equities are mostly higher today. The large bourses in the Asia Pacific region advanced led by a 2% rally in Taiwan and 1.75% advance in Australia. Europe, returning from a long holiday-weekend is bidding the Stoxx 600, which is up about 0.65% in late morning turnover. US index futures are hovering around little changed levels.

• Benchmark 10-year yields are 1-2 bp higher in Europe. The 10-year US Treasury yield is little changed around 4.33%.

• Gold is chopping inside yesterday’s range and appears to have stalled near $4700. Silver is little changed near $72.55.

• May WTI initially extended its gains to a new high near $116.55 but pulled back to around $112.50 and is near flat on the session.

Data

• The US February durable goods orders are too dated to be impactful. The war is likely to boost defense orders. Still, a decline in Boeing orders may drag headline orders lower after a flat January report. Orders excluding defense and aircraft may have ticked up (~0.5%) after being unchanged in January. Late in the session, February consumer credit will be reported. The market looks for a modest $11 bln increase. It rose by $8 bln in January and averaged a monthly increase of $9.5 bln last year and $8.2 bln a month in 2024.

• Canada’s March Ivey survey is on tap. It runs a bit hotter than the PMI. The March composite PMI rose to 48.5 from 47.1 in February. It was above 50 once last year (October). The Ivey survey was at 56.6 in February, a five-month high.

• The eurozone’s final March services and composite PMI edged up from the preliminary estimate of 50.1 and 50.5, to 50.2 and 50.7, respectively. They were both at 51.9 in February. The eurozone is understood to be more vulnerable than the US to the disruption caused by the Middle East war.

• The UK’s final March services and composite PMI were revised lower the flash estimate of 51.2 and 51.0, respectively. The services reading eased to 50.5 and the composite stands at 50.3. In February, the services PMI was at 53.9, a six-month high and the composite was at 53.7, matching the January high, which was the best since August 2024.

• Australia’s final March services and composite PMI softened a little from the preliminary estimates of 46.6 and 47.0, respectively. In the final reading, the services PMI stands at 46.3 and the composite is at 46.6. Separately, household spending slowed slightly to 0.3%, matching the January increase. Lastly, the Melbourne Institute’s inflation survey found expectations jumped by 1.3% in March, lifting the year-over-year rate to owing the year-over-year rate 4.6% (from 3.6%).

• China’s reserves fell to $3.342 trillion in March from $3.428 trillion in February. The 2.5% decline appears to have been driven by valuation, with the dollar stronger and bonds lower. Still, the PBOC continued to accumulate gold.

• The Reserve Bank of India meets first thing tomorrow. Capital controls have spurred a short squeeze of the rupee, which takes pressure off the central bank to hike rates. Its key repo rate is 5.25%. The rate was last cut in December by 25 bp.

Disclaimer

Cease-Fire Hopes Blunt US Ultimatum

noreply@blogger.com (Marc Chandler) — Mon, 6 Apr 2026 06:45:00 -0400

The US deadline on Tehran for re-opening the Strait of Hormuz has subtly shifted until tomorrow. The holiday-thinned market initially bought dollars and oil and took risk off in response to the continued attacks and the escalation of US rhetoric. However, negotiations, apparently led by Pakistan, Egypt, and Türkiye for a 45-day cease fire, have captured the imagination of market participants, even though the negotiators themselves do not appear optimistic.

In quiet turnover, the dollar has given up its early gains, and as the North American session is about to begin, the greenback is lower against all the G10 currencies and emerging market currencies. US index futures are trading firmer and May WTI is off around 1% but is still near $110. It still seems binary. If the hopes are dashed, risk will come off as the conflict could dramatically escalate.

Prices

G10

• The euro finished the holiday-thinned session before the weekend on a soft note near session lows (~$1.1515). It slipped to $1.1505 before recovering on the back of hope of cease fire that will be negotiated. It has taken out the pre-weekend high (~$1.1550) to rise to almost $1.1570. The next important technical area is $1.1600 and then $1.1630-40.

• The conditions for material intervention to support the yen by Japanese officials do not appear present and the market does not appear to have given up on fishing for the official pain threshold. The dollar edged up to almost JPY159.85, a five-day high before falling to almost JPY159.30. Last Friday’s low was around JPY159.45. A break of JPY159.00, where options for about $672 mln expire late today, could spur a move to last week’s low near JPY158.30.

• Sterling traded heavily ahead of the weekend and slipped back below $1.32 in North American dealings. Earlier today, it held above the low set near $1.3160 last week, which it had not seen since last November. It recovered though last Friday’s high (~$1.3245) to reach nearly $1.3260. Above there, the next hurdle is around $1.3285, and there are options for GBP475 mln struck at $1.3300 that expire today.

• The US dollar reached a four-month high against the Canadian dollar last week slightly above CAD1.3965. It held below the pre-weekend high, near CAD1.3950, and had returned to last Friday’s low (~CAD1.3915). A break of CAD1.3900 could signal a move toward CAD1.3870.

• The Australian dollar settled about 0.25% higher last week. Still, after a 2.1% sell off the previous week, it was a faint-hearted bounce. And the Aussie closed below $0.6900. It was initially sold to almost $0.6875 today before it recovered to around $0.6935. Options for A$330 mln at $0.6900 expire today. To confirm the bullish outside up day, the Aussie must close above $0.6915.

• The dollar has found support in the past three sessions near the 20-day moving average which comes in around MXN17.8350 today. It has been sold a little through MXN17.77 today, its lowest level since March 26. The greenback is posting an outside down day against the peso and must close below MXN17.8250 to confirm it. A convincing break could see MXN17.70 initially.

• The offshore yuan looks like it is going no place quickly. With mainland markets on holiday today, the greenback remains within last Thursday’s range (~CNH6.8725-CNH6.9040). At the same time, its relative stability makes it attractive for some market participants. Some are making the same case about Chinese government bonds. Since the war began, the yield on the 10-year Chinese bond is virtually flat. The 10-year Treasury yield is up 40 bp coming into today and the 10-year Gilt yield was up almost 60 bp. Japan’s 10-year benchmark yield has risen almost 30 bp, while Germany’s is up by 35 bp.

• The short squeeze engineered by the Reserve Bank of India last week by limiting positions of banks and denying them access to the non-deliverable forward market extended into today’s activity after last Friday’s holiday. The dollar peaked near INR95.1250 on March 30 and today traded down to INR92.78, the lowest level since March 18. It frayed the 20-day moving average (~INR92.83) and settled a little above INR93.06.

Other Markets

• The extended holiday means many equity markets are closed today. Japanese markets themselves were mixed. The Kospi and Indian equities gained more than 1%. The S&P 500 and Nasdaq futures are trading 0.25%-0.50% better.

• The 10-year JGB yield rose 3.5 bp to a new high near 2.43%. It was around 2.11% before the war. The 10-year Treasury yield is firm near 4.35%. It was near 3.94% before the war.

• Gold is trading firmly but is within the pre-weekend range (~$4554-$4800). Silver is a little better than flat, slightly above $73.

• Initially, May WTI rose to almost $115.50, a new high but hope that there would be a ceasefire ahead of the expiration of the US ultimatum, pushed the contract a little through $109. It is straddling the $110 area ahead of the North American open.

Data

• US March ISM services survey will be released today. Activity is likely to have slowed, and prices are expected to have risen. Mostly pre-war data is on tap this week. The mid-week release of last month’s FOMC minutes may offer insight into how officials are balancing the risk to both mandates. Still, the futures market is fairly convinced now there will be no change in policy in the coming months.

• Canada sees the March services and composite PMI. Canada’s economy was weak before the war. The composite PMI was above the 50 boom/bust level once last year (October) and was at 47.1 in February. It averaged 47.3 in Q4 25 and 46.8 in the first two months of 2026.

• Mexican markets re-open after the four-day weekend, and the high-frequency data, including gross fixed investment and private consumption are from January, making them too old to have much market significance. March domestic vehicle sales are also due. There is a strong seasonal tendency for March sales to improve (18 of the past 20 years). They stood near 118.3k in February.

• India’s final March composite PMI stands at 57.0 (up from 56.5 preliminary estimate). While for most other countries, this would be a constructive result, for India, it is the weakest since October 2022. The central bank meets at the end of the week. None of the 13 economists who participated in Bloomberg’s survey anticipate a change in the 5.25% repo rate, but the swaps market recognizes the risk of a hike after the central bank has taken measures to curtail bank’s ability to short or foster short rupee positions.

Disclaimer

Week Ahead: It's Still Mostly about the War

noreply@blogger.com (Marc Chandler) — Sat, 4 Apr 2026 07:07:00 -0400

The Middle East war remains the dominant fundamental condition. There continues to be some indication that market participants are hopeful of a resolution soon. The May WTI contract settled near $111.55 last week, which appears to build in the risk of near-term escalation, but the June contract settled close to $98. The September contract is below $78. The US S&P 500 rose for the first time in six weeks. Benchmark 10-year yields in the US and Europe eased. Still, the firing of three US army generals and new attacks on Middle East infrastructure warn that further escalation seems likely before de-escalation.

The week ahead begins slowly with many centers shut for Easter Monday. The highlights include the US and China's CPI and Canada's employment report. The Reserve Bank of New Zealand is only G10 central bank that meets and is most likely to stand pat. All two dozen economists in Bloomberg's survey expect Poland's central bank to maintain its reference rate at 3.75%. There is also an agreement among economists that the Bank of India will leave its repo rate at 5.25%. India's central bank announced capital controls last week, which limit the size of banks' foreign exchange positions and barred their activity in the non-deliverable forward market to defend the rupee. It may complicate hedging of Indian bonds by international asset managers.

Drivers: Optimism that the Middle East war will end shortly saw the dollar's gains pared. The futures market is again pricing in around 30% chance of a cut this year. At the extreme, on March 26, the market was discounting almost 58% chance of a hike. Before the war began, the two-year yield settled below 3.40% for the first time in several years. It was around 4.03% a month later. After the March jobs report, it finished last week near 3.82%.

Data: The new week begins with the March ISM services, which are likely to start picking up the disruption caused by the war, with activity slower and prices higher. February durable goods orders and another look at Q4 GDP will be less consequential. February personal income, consumption and deflators will provide a base for comparison and to see the impact of the war. March CPI at the end of the week will draw attention even though questions have been raised over the increased use of “imputation" by the Bureau of Labor Statistics. The base effect does not auger well. Last March, headline CPI was flat and the core rose by 0.1%. The FOMC minutes from the meeting earlier this month may offer insight into official thinking two weeks into the war.

Prices: The Dollar Index settled last week above 100.00 for the second consecutive week. The high since the war began was recorded last Tuesday near 100.65, its best level since last May. The momentum indicators did not confirm the high but the risk that the war escalates seems to limit selling interest. A convincing break of 99.00 is needed to boost the odds that a high is in place.

EMU

Drivers: The euro lost nearly four cents amid the position adjustment to war and anticipated economic shock. It reached a low near $1.14 around the ides of March. However, as optimism of relatively short war took hold, the euro recovered. The US two-year premium over Germany had collapsed to a five-year low near 118 bp (from the year's peak in January of almost 153 bp). The swaps market has about 50% chance of a hike at the end of this month, down from around 85% chance at its peak.

Data: The eurozone data is unlikely to have much market impact. The final March services and composite PMI may soften further from the preliminary estimates. February retail sales and PPI are unlikely to be important factors considerations when the ECB meets later this month. Nor will they have much impact on risk appetites, which are being driven by the disruption of the war.

Prices: The euro has spent most of the last several weeks trading between $1.1400 and a little above $1.1600. The momentum indicators bottomed around the middle of March when the euro was approaching the lower end of the range. Still, they are not generating strong signals and the five- and 20-day moving averages have converged around $1.535-45. If/when the markets see an off-ramp to the war, this broadly sideways price action could mark a base.

PRC

Drivers: Beijing did not take advantage of the US dollar's strength to depreciate the yuan. It has shown restraint and actually set the yuan's fix against the dollar at its highest level in several years last week (CNY6.8880). China is the world's largest importer of oil and the higher price and disruption in a range of other industries is a challenge for China, but the higher energy prices also will likely boost the demand for EV and solar panels. Beijing likely gathered a great deal of intelligence on US military operations and tactics, and depth of supply chains.

Data: China may report lending figures in the coming days, but it can be counted on to publish March consumer and producer prices at the end of the week. Even though oil from Iran is still making its way to China, US-Israel war on Iran is likely disruptive. Even before the war began, China was emerging for the consumer deflation. The CPI rose 1.3% year-over-year in February, the most in three years. The deflation in producer prices had lessened in six of the seven months through February, and at -0.9% was the least since January 2023. The median forecasts in Bloomberg's survey see the PPI emerging from deflation (0.5%) and the CPI little changed at 1.2%.

Prices: While the PBOC has pushed the dollar fix lower, the offshore yuan remains range bound. The greenback has traded between about CNH6.86 and CNH6.9435 since the Middle East war began. Last week's high, near CNH6.9270, was the highest since March 9. A development worth monitoring is that the onshore yuan is trading stronger than the offshore yuan, with some notable exception, since the war began. It had been trading mostly weaker since late November, which had bolstered our conviction of the underlying trend.

Japan

Drivers: The yen is sensitive to the broad direction of the dollar. The 30-day rolling correlation of changes in the dollar against the yen and Dollar Index is around 0.72, not far from where it was on the eve of the Middle East war. It bottomed in mid-March below 0.60 and the low for the year was in the third week of January around 0.52. The dollar-yen 30-day correlation with changes in the US 10-year yield is near 0.60, the upper end of where it has been since last October. In January, it had fallen to almost 0.10, the lowest since May 2025. Counter-intuitively, over the past 30 sessions, changes in dollar-yen and Japan's two-year yield are positively correlated by the most in two months. This means the rising Japanese short-term yields is associated with a stronger dollar, not yen. Of note, the changes in the dollar-yen and the S&P 500 over the past 30 sessions are the most inverse (~-0.35) since last October. It means that dollar tends to move higher against the yen when US equities decline (risk-off).

Data: Most of Japan's data is for February, before the US/Israel war on Iran began. These include household spending, labor income, and the current account (which has improved sequentially for the past 20 years in February without fail). March producer prices are due ahead of the weekend. Still, the market is discounting about a 70% chance of BOJ hike when it meets next on April 28, and about a 60% chance of another one in Q4.

Prices: The dollar is trading choppily but mostly in a JPY158-JPY160 trading range. Both sides of the range have been violated by 0.4-0.5 yen a couple of times since the Ides of March. While Japanese officials have continued to warn about one-way markets and speculation, the conditions have not met their threshold for actual material intervention. The dollar settled lower in three of last week's five sessions. The yen finished stronger last week and has been alternating for the past three weeks between advances and declines. One-month implied volatility eased every day last week and is now (~8.9%) the lowest since the war began.

Drivers: The single most important driver of sterling continues to be the broad direction of the US dollar. The rolling 30-day correlation between changes in sterling and the Dollar Index is inverse, -0.85. It has not been much more extreme this year. Last October, it reached a little beyond -0.90 which was the most since April 2024. Perhaps, it is even simpler. The 30-day correlation of changes in sterling and changes in the euro is about 0.88, the highest since mid-2025.

Data: The final services and composite PMI and the March construction PMI seem of secondary importance, especially for the Bank of England, which meets on April 30. The swaps market is discounting a little more than a 50% chance of a hike, and at least one more before the end of year (~80% chance of another).

Prices: Sterling looks heavy. At the end of March, it recorded a new low since last November, near $1.3160. It recovered a couple of cents on optimism about the war, but when it faded, sterling was pressed below $1.3200. The momentum indicators are stretched but show no sign that they are poised to turn higher. Perhaps, escalation of the war could see sterling approach the $1.3000-40 technical target. Another weight on sterling is coming from the cross against the euro. In the first two weeks of the war, the euro fell around 2% against sterling but since the middle of March the euro has recouped about 1.5% and looks poised to continue to outperform sterling.

Canada

Drivers: The US dollar-Canadian dollar exchange rate is not as sensitive to changes in oil prices as the conventional narrative suggests. Over the past 30 sessions, the correlation has been slightly positive, meaning the Canadian dollar is more likely to weaken in the face of a rise in oil prices than to strengthen. Statistically, it is not significant (less than 0.15), though it is the most since last September, but the sign is notable. The correlation of the greenback against the Canadian dollar and the Dollar Index is a little above 0.60. The peak near 0.85 last month was the highest since May 2024.

Data: The jobs data at the end of the week is more important for investors and policymakers than the survey results (service and composite PMI and IVEY). Canada lost a whopping 108.4k full time jobs in February and the unemployment rate rose from 6.5% to 6.7%. Another poor report would likely weigh on the Canadian dollar. The swaps market has less than 10% chance of rate hike this month (April 29) and does not have a hike fully discounted until Q4. In recent days the swaps market has pulled back from discounting two or more rate hikes this year as it had mulled in late March.

Prices: The US dollar reached just beyond CAD1.3965 last week to record a new marginal high since last December. The pullback toward CAD1.3870 may give it a running start to the next technical target in the CAD1.4000-15 area. To be sure, the momentum indicators are stretched after the greenback has run-up about 3.25% since the March 9 low. That means that what we expect to be the next leg up, will complete the move. We will be especially attentive to reversal price patterns.

Australia

Drivers: The Australian dollar tends to be sensitive to the overall US dollar environment, and over the past 30 sessions, its correlation with changes in the Dollar Index is near -0.75. It has not been much more extreme since Q2 24. There also seems a sensitivity to the risk environment. The 30-session correlation with the S&P 500 reached above 0.70 last month, rising from around 0.20 in early February. It is now near 0.62. The correlation with gold peaked around 0.80 last month, the highest since last 2022. It fell to the low for the year near 0.30 in late March and now around 0.45.

Data: The final March services and composite PMI will be of passing interest. February household spending may attract more attention as the central bank seemed to have responded to the surge in Q4 25 (average of slightly more than 0.6% a month, matching its strongest quarterly performance since Q3 23), with the two rate hikes before the war began. The futures market is pricing in almost 80% chance of a third consecutive hike.

Prices: The Australian dollar fell to two-month lows last week near $0.6835. The daily momentum indicators are oversold and look poised to turn higher. Yet the price action has not been persuasive that an important low is indeed in place. There may be potential for one more leg down to around $0.6800.

Mexico

Drivers: The peso appears to have two dominant drivers presently. The first is the general direction of the dollar. Changes in the US dollar against the Mexican peso and the Dollar Index are 0.70 correlated over the past 30 sessions, the most since last October. The other driver is the risk appetite. Changes in the US dollar against the Mexican peso and the S&P 500 is inversely correlated (~-0.80), the most since 2020.

Data: The central bank's rate cut in late March, and signal that it may cut rates again, seems to take some of the thunder away from the March CPI, due Thursday. The headline and core are above the upper end of the 2%-4% target range. Instead, most central bank officials are more concerned about growth. The economy was limping before the war began. At the end of the week, Mexico reports February industrial output. It slumped 1.1% in January, which more than offset the increase in November and December 2025. It was the largest decline in a little more than a year.

Prices: The peso rose by about 1.4% last week, the largest weekly gain since late January. It was the second strongest currency in the region after the Brazilian real (~1.6%). The dollar has been trapped in narrow range, hugging the 20-day moving average for the past three sessions (~MXN17.8250). The daily momentum indicators are turning lower after the greenback rallied a little more than 5.5% since the war began. It reached almost MXN18.1645 last week, a new high for the year and stalled in front of the 200-day moving average.

Disclaimer

Risk of Escalation Discourages Risk Taking while US Jobs Report May Extend the Dollar's Narrow Ranges

noreply@blogger.com (Marc Chandler) — Fri, 3 Apr 2026 06:48:00 -0400

The shroud of the Middle East war overhangs the Good Friday holiday. The attack on an Iranian bridge yesterday threatens a response in kind by Tehran, and this will serve to keep risk appetites in check ahead of the weekend. Many centers will be closed on Monday, as well. The main interest today is with the US March jobs data. Because the labor force is barely growing, in good part due to the crackdown on immigration (both legal and illegal), various estimates suggest that practically no job growth is consistent with the new equilibrium. The US has created about 156k jobs over the past 12 months, and the unemployment rate has averaged 4.3%. The unemployment rate is at 4.4% and that is the median projection for the end of the year by the Federal Reserve last month. The low level of unemployment seems to belie claims of stagflation.

Meanwhile, news that the US Army Chief of Staff General, and two other generals were purged is being discussed widely. It seems unusual in the middle of a military conflict. Reports suggest clashes over promotions and operational strategy in Iran. While it could impact command continuity it is arguably about aligning leadership with the administration’s goals. At the same time, it fans some fears that the US will put “boots on the ground”. This feeds into the market’s reluctance to take more risk. At the same time, the week ending Wednesday was the first in six weeks that foreign central banks did not draw on their custody holdings (Treasuries and Agencies) at the Federal Reserve. In fact, their holdings increased by almost $3.3 bln.

Prices

G10

• The euro’s sell-off after President Trump’s national address on Wednesday evening in the US, saw it retrace (61.8%) of the week’s rally, slightly below $1.1515. It recovered to about $1.1565 before running out of steam. The thin markets have confined it to about $1.1530-$1.1545 so far today, trading as it were between two option strikes ($1.1525 for ~512 mln euros and $1.1550 for ~850 mln euros) that expire today. The US jobs data may expand the range but the risk of escalation in the Middle East may deter strong gains ahead of the weekend.

• The dollar approached JPY159.75 in early North American turnover yesterday. It pulled back to around JPY159.25 before it recovered. It is trading quietly between about JPY159.45 and JPY159.70. Options for about $430 mln, struck at JPY160 expire today.

• Sterling recorded the low for the year on Tuesday near $1.3160. It rallied to around $1.3345 on Wednesday but retreated deeply back to almost $1.3180 yesterday. It recovered to about $1.3250 before stalling. Sterling is in a narrow range of about $1.3220 to $1.3245. Options for GBP375 mln at $1.32 expire today.

• The US dollar recorded the year’s high against the Canadian dollar on Tuesday near CAD1.3965. It backed off to almost CAD1.3870 on Wednesday and caught a new bid yesterday that lifted it to CAD1.3935 yesterday. It is confined to about CAD1.3915 to slightly more than CAD1.3925. The daily momentum indicators are stretched but they won’t prevent challenge on this week’s high, and possibly a test of the CAD1.4000-15 area.

• The Australian dollar was sold to $0.6860 in the risk-off moves that followed President Trump’s address. It recovered to almost $0.6920 in North American turnover but has remained slightly below there today. It frayed $0.6900, but not by much, and options for A$840 mln at $0.6880 expire today, as do ~A$540 mln options struck at $0.6870.

• The dollar recorded an inside day against the Mexican peso yesterday, having remained in Wednesday’s range (~MXN17.7960-MXN17.9680). The local markets were closed yesterday and remain on holiday today. It has been confined to a narrow range around yesterday’s MXN17.87 close, with a small downside bias.

• The dollar found support against the offshore yuan in front of CNH6.8720. It has not traded below CNH6.8700 for three weeks. Although the dollar traded up to CNH6.9040, it settled below CNH6.89. It has hardly spent any time above yesterday’s settlement and slipped slightly below CNH6.88. The PBOC set the dollar’s reference rate sharply lower in the past two sessions (by a total of a little less than 0.5%) and lowered it for the third consecutive session yesterday. It has not been set lower for four consecutive sessions this year. The pattern held, and today’s fix was set at CNY6.8929 (CNY6.8880 yesterday, a new three-year low, and CNY6.9141 a week ago).

• Indian markets are closed for the holiday today.

Other Markets

• The holiday has seen many financial centers close. The equity markets in the Asia Pacific region that were open were mixed. The Nikkei gained about 1.25% and South Korea’s Kospi gained 2.75%. The others, including mainland China, and several smaller bourses eased. European bourses are closed, leaving the Stoxx 600 with about a 2.7% gain this week. The US stock market is closed today but the futures are off by around 0.2%-0.3%. They are up 2.6%-3.5% on the week ahead of the US jobs report.

• Benchmark 10-year yields are flat. The 10-year JGB yield slipped slightly and is up about 1.5 bp this week. European bond yields are off 4-13 bp lower this week and peripheral premiums narrowed. The US 10-year Treasury yield is at 4.30%, which is about 4.5 bp lower than it settled last week.

• The holiday means that gold, silver and oil are not trading.

Data

• The median forecast in Bloomberg’s survey is for a 65k rise in March US non-farm payrolls, and the unemployment rate is seen unchanged at 4.4%. Of course, the February loss of 92k jobs is subject to revision. Since last April’s Liberation Day, the US has lost about 20k jobs overall and 90k in the manufacturing sector. Part of the reason for the persistent revisions is that businesses appear more reluctant to participate in a timely fashion. The final services and composite PMI are of passing interest as the preliminary estimate is “close enough”.

• Despite the Good Friday holiday, France reported a larger than expected 0.7% decline in February industrial output and January’s 0.5% increase was revised to 0.2%. The aggregate estimate for the eurozone is due April 15.

• Japan reported its final March services and composite PMI. The former stands at 53.4, up from the initial estimate of 52.8, but down from 53.8 in February, its highest level since April 2024. The composite is at 53.0, better than the 52.5 flash estimate but down from 53.9 in February.

• China’s RatingDog March services PMI slowed to 52.1from 56.7. This unwinds the February’s gain from 52.3 in January. The composite eased to 51.5 from 55.4. It averaged 51.3 in 2025 and 51.4 in Q4 25. The Q1 26 average is 52.8.

Disclaimer

Hope Dashed, Risk Appetites Slashed Ahead of Long Holiday Weekend for Many

noreply@blogger.com (Marc Chandler) — Thu, 2 Apr 2026 06:51:00 -0400

President Trump’s national address seemed to contain little more than a reading of some of his recent social media posts. The market was eager for some sign of confirmation of its hope that had buoyed the capital markets in the last couple of sessions. It found none. The threat of escalating attacks while reiterating that the US military operation can wind down in the next two-three weeks failed to underpin sentiment ahead of what will be a long holiday weekend for many.

Risk appetites have been squashed. Equities and bonds have tumbled. The US dollar has surged. The Trump administration is likely to be disappointed with the market’s reaction, and some damage control may be attempted today, but ahead of the long weekend, which begins tomorrow for many financial centers, some of which will remain closed on Monday as well, it be difficult to rebuild the animal spirits. Fear now overwhelms hope that had held center stage for the past couple of sessions.

Prices

G10

• The euro stalled yesterday ahead of the last week’s highs in the $1.1630-40 area. Short-term players may have cut their longs after a 1.5-cent rally in two sessions, ahead of President Trump’s address. The retreat extended about $1.1515 today, which meets a retracement target of this week’s recovery from around $1.1445. Nearby support by be in the $1.1485-$1.1500 area. Note that options for 720 mln euros at $1.1513 and 2 bln at $1.1500 expire today.

• From Monday’s high to yesterday’s low, the dollar fell about 1.35% against the Japanese yen. This breaks the one-way market that Japanese officials commented on the dollar climbed four days in a row last week. The risk-off and jump in US yields have helped lift the greenback to almost JPY159.75 today, and once again JPY160 comes into view. Options for nearly $1.5 bln struck there expire today. Initial support is seen in the JPY159.35 area.

• Sterling peaked 1/100 of cent below last Friday’s high yesterday, according to Bloomberg’s pricing. After poking barely above $1.3345, sterling slipped back below $1.3300. It has been sold slightly through $1.3200 today. The four-month low was recorded on Tuesday, near $1.3160. The intraday momentum indicator oversold. Nearby resistance is seen in the $1.3240-50 area.

• The US dollar peaked against the Canadian dollar on Tuesday a little above CAD1.3965 and was sold to almost CAD1.3870 yesterday. It made a marginal new low today before it was pushed above yesterday’s high shy of CAD1.3920. The week’s high was recorded on Tuesday (~CAD1.3965). Above there, resistance is seen in the CAD1.4000-20 area.

• The Australian dollar extended its recovery from around $0.6835 on Monday and Tuesday to a little more than $0.6960 yesterday. The upside momentum faded, and the Aussie dipped below $0.6915 in late dealings in North America. It was sold to $0.6865 today. A break may spur at re-test on the week’s low. Stronger support is seen closer to $0.6800, where options for nearly A$1.2 bln expire today.

• The Mexican peso had a good day yesterday. The US dollar traded below the 20-day moving average against the peso for the first time in nearly a month (~MXN17.8165 today). It failed to settle below it and straddled the MXN17.85 area in late dealings. It has returned to almost MXN17.96 today. Latam currencies accounted for four of the best performing emerging market currencies yesterday. The Brazilian real’s 0.45% gain did not make the cut. The Argentine peso did not but for a different reason. Its 0.65% loss yesterday gave it the distinction of being the weakest currency in the world.

• The dollar was pressed to its lowest level in about three weeks yesterday against the offshore yuan, almost CNH6.87. It recovered to sightly above the mid-point of the session’s range in the North American afternoon around CNH6.88. The greenback has steadily climbed to a little above CNH6.90 after the initial quiet start in the local session. The PBOC set the dollar’s reference rate lower for the third consecutive session today (CNY6.8880 vs. CNY6.9025 yesterday). It was the second consecutive session of an outside reduction of more than 0.20% adjustment, which is the largest two-day move since September 2024.

• The Indian rupee soared around 1.85% today, its biggest advance since 2013 as the central bank intensified capital controls that spurred a powerful short squeeze. Banks were prohibited from offering some non-deliverable forward rupee contracts to residents and non-residents. A measure of volatility jumped to six-year highs, which in turn prompted the central-bank supervised clear house to boost margin requirements for forwards, which further squeezed the market. The dollar settled near INR94.8325 before the two-day holiday and is now around INR93.1050, having fallen to almost INR92.8260.

Other Markets

• The hope that had lifted equities in recent days was questioned after President Trump’s address. Asia Pacific equities tumbled with most large bourses off 1-2%. Hong Kong was down a little less, while South Korea’s Kospi was tagged for almost 4.5%. India’s equities are bucking the trend and are holding small gains in late turnover. Europe’s Stoxx 600 is snapping a three-day advance of almost 4% and is off a little more than 1% in late morning turnover. US index futures are off around 1.0%-1.5%.

• Benchmark 10-year yields are jumping higher today. A weak reception at Japan’s 10-year bond auction saw yields rise as much as nine basis points today. European 10-year yields are 3-7 bp higher and the 10-year Treasury yield is up about four basis points to poke above 4.36%.

• Gold’s recovery was initially extended to $4800 today to fray the 20-day moving average for the first time in three weeks. It was sold to almost $4555 before finding bids. It stalled near $4650 in early European turnover. Silver held below its 20-day moving average (~$76.35) and was sold to slightly below $69.70. It has stabilized to staddle the $71 area in the European morning.

• May WTI opened near $99 today and initially slipped to $97.50 before hope faded. The contract reached slightly above $108, the highest price since the peak on March 9 (~$113.40). June Brent briefly traded below $100 and then reached almost $109.20. Tuesday’s high was closer to $110 and the war-high was recorded on March 19, a little above $112.

Data

• US Challenger job cuts and the weekly jobless claims play second fiddle today ahead of tomorrow’s March jobs report. February’s trade data gets the spotlight. It will help economists forecast Q1 GDP, which the Atlanta Fed says is tracking 2%. Liberation Day came and went, and the US 2025 trade deficit was little changed from 2024, almost $912 bln, even if the composition shifted away from China. Still, note that in the three months through January 2026, the US trade shortfall was about $184 bln compared with $305 bln in the three months through January 2025. Imports are seen slipping for the second consecutive month. Imports were virtually flat last year, while exports rose by an average of 0.5% a month. After jumping 5.5% in January, exports are expected to have fallen by around 2.3% in February. St. Louis Fed President Musalem and Chicago Fed President Goolsbee address monetary policy today, while Governor Barr discusses AI and consumer issues.

• Canada reports its February merchandise trade balance today. As we have noted, there was sharp deterioration last year. The goods trade deficit swell to C$31.6 bln in 2025 from almost C$7.2 bln in 2024. It ran a C$7.5 bln deficit in the three months through January compared with a C$4.6 bln surplus in the three months through January 2025. The broader measure of trade, the current account, saw the deficit widen to 0.9% of GDP last year from 0.5% in 2024.

• Australia reported its February goods trade earlier today. It widened dramatically to A$5.68 bln from A$2.26 bln in January and A$2.7 bln in February 2025. Exports surged 4.9% (after falling a revised 1.6% in January, which was initially reported as a 0.9% decline). Imports fell by 3.2% in February (after rising a revised 1.1% in January, which was initially estimated as a 0.8% increase). Last year, Australia’s goods trade surplus narrowed to about A$45.1 bln from A$66.9 bln in 2024. Imports rose by an average of 0.5% a month in 2025 after averaging 0.8% increase in 2024. Exports rose by an average of 0.4% last year and fell by the same amount on average in 2024. Australia’s current account deficit widened to 2.6% of GDP in 2025 from a 2.2% shortfall in 2024.

Disclaimer

Hope Boosts Risk Appetites and Drags the Greenback Lower

noreply@blogger.com (Marc Chandler) — Wed, 1 Apr 2026 06:46:00 -0400

Hope springs eternal, and the capital markets are trading on hope that the Middle East war ends shortly, even as missiles continue to be fired in the region. President Trump again hinted that the war may be winding down shortly. He will address the nation at 9:00 pm ET today. At a news conference today, UK Prime Minister Starmer announced plans for closer cooperation with the EU. Although by treaty, NATO is not obligated to get involved, any more than it did in the US long war in Vietnam, President Trump renewed his threat to leave the alliance. After the US threat earlier this year to take Greenland from a NATO member, the pact had been strained.

The Middle East War weighed on stocks and bonds and supported the dollar. If, and that may still be a big if, the war winds down, the markets are anticipating a reversal: a rally in stocks and bonds and a weaker greenback.

Prices

G10

• Option-related buying may have provided fuel but the hope of a soon end to the war in the Middle East set the path higher for the euro. It approached $1.1565 in North America yesterday, a retracement target of the losses since last week’s high (~$1.1640), which is also the next technical target. Options for 1 billion euros at $1.1650 expire tomorrow. It reached about $1.1610 European turnover today. Support is seen near yesterday’s high.

• The heightened verbal intervention on Monday and the dollar’s broad setback yesterday, coupled with lower US yields, pushed the yen to four-day highs yesterday. The greenback had briefly poked above JPY160.40 on Monday and fell to almost JPY158.65 yesterday. It settled below the 20-day moving average for the first time in over month. It is near JPY158.90 today, and it has encountered sellers around JPY159.00 today. Options for about $955 mln at JPY159.10 expire today. Follow-through selling today took it slightly below JPY158.30.

• Sterling set a new low for the year yesterday, around $1.3160, before it recovered back toward $1.3265. It held shy of Monday’s high (~$1.3285). It has traded to $1.3315 today. It probably takes a move above $1.3320, where options for almost GBP590 expire today, to lift the technical tone.

• The Canadian dollar also fell to a new low for the year yesterday before it recovered. The US dollar reached a little more than CAD1.3965. As US dollar pulled back broadly, it fell to a new session low in late dealings, slightly below CAD1.3910. Follow-through selling saw almost CAD1.3885 today. Options for $710 mln at CAD1.3900 expire today. If a high is in place, the greenback will likely ease toward CAD1.3840-50 and then CAD1.38 in the near-term.

• The Australian dollar held barely above Monday’s two-month low (slightly below $0.6835) and recovered to settle above Monday’s high (~$0.6890). It reached nearly $0.6955 today. Nearby resistance is seen around $0.6970 and the $0.7000-10 area.

• The Mexican peso came storming back yesterday. Risk-on helped lift Latam currencies, which accounted for four of the top six emerging market currencies. The Hungarian forint and South African rand also enjoyed strong gains. The dollar made a marginal new high for the year against the peso and continued to hold below the 200-day moving average, which approached for the third consecutive session. The greenback reversed lower and settled below Monday’s low (MXN17.9855). The dollar has been sold to about MXN17.8150 today to fray the 20-day moving average. It has not closed below it since the Middle East war began. A convincing break could target the MXN17.70 area. Separately, note that in controversial meeting that saw the finance minister walk out of a meeting he voted in, the central bank of Colombia hiked its policy rate by 100 bp (to 11.25%), repeating January’s hike. The market had expected it, but the government opposed it. The dollar settled on session highs yesterday near COP3673. The Colombian peso is on the of the few currencies that have appreciated against the dollar since the Middle East war began.

• The offshore yuan recovered yesterday, and the dollar reached a four-session low, slightly below CNH6.8870. The greenback settled below the 20-day moving average (~CNH6.8955 today). Follow through selling today saw the US dollar approach the lower end of the recent range around CNH6.87. The PBOC seemed to have little choice today but set the dollar’s reference rate lower (CNY6.9025 vs. CNY6.9194 yesterday).

• Indian banks and forex market remained on holiday. They re-open tomorrow and are shut again on Good Friday.

Other Markets

• The rally in US equities yesterday and the optimism that the war will end shortly fueled sharp gains in Asia Pacific equities today. The Nikkei rallied more than 5% and South Korea’s Kospi surged 8.4%. Taiwan’s Taiex jumped 4.6%. Hong Kong and Australia gained more than 2%. Europe’s Stoxx 600 is up over 2%. If sustained, it will be the largest gain since last April. US index futures are 0.50%-0.70% higher.

• Bonds are also rallying. European benchmark yields are 4-7 bp lower and the 10-year US Treasury yield, which peaked last week near 4.48%, is now around 4.28%, off about three basis points.

• Gold is extending its recovery and reached almost $4748 today, its best level in nearly two weeks. It bottomed on March 23 slightly below $4000. Silver is lagging. It is struggling to maintain the upside momentum that carried it to about $75.60 today. In late European morning turnover, it is near $74.35.

• May WTI was sold to a three-day low near $96.50 earlier today but is hovering near $100. June Brent recovered from a four-day low (~$98.35) and is practically flat on the day in late European morning turnover near $104.

Data

• The market’s sensitivity to US labor market developments suggests the ADP private sector jobs estimate may be the most important data point today. It estimated that 63k jobs were added in February, the most in three months. In the first two months of the year, ADP figures suggest about 74k jobs were created in the private sector, roughly half of the job growth in Jan-Feb 2025. The war has made February retail sales less important than otherwise, but after a 0.2% contraction in January a 0.5% increase is projected by the median in Bloomberg’s survey. The ISM manufacturing survey and the final PMI manufacturing surveys are also on tap. Recall that the initial PMI estimate showed a modest gain to 52.4 from 51.6. It finished last year at 51.8. Lastly, March auto sales are seen ticking up slightly to 15.88 mln (seasonally adjusted annualized pace) from 15.75 mln in February. Last year’s high of 17.77 mln was record in March.

• Canada’s March manufacturing PMI is due. It has risen for the past three months to 51.0. It was below 50 last year after January and finished 2025 at 48.6.

• Mexico’s economy is struggling and that helps explain the Banxico cut rates last week despite the inflation overshoot. The March manufacturing PMI will be released today. It was above 50 one last year (August) and was at 47.1 in February after rising for two consecutive months. Mexico’s own IMEF surveys, also due, typically draw less interest. Lastly, Mexico reports February worker remittance, the top source of hard currency. Remittances appear to be gradually slowing. Last year’s monthly average was about $5.15 bln, down from the 2024 average of $5.40 bln. Seasonally, remittances have tended to be weak in February but improve in March.

• The eurozone’s final March manufacturing PMI was 51.6 vs. 51.4 initial estimate and 50.8 in February. It has risen each month in Q1. With the new energy shock, the streak may be challenged in Q2. Lastly, the eurozone’s February unemployment rate ticked up to 6.2% from the EMU-era low of 6.1% in January.

• The improvement in the UK’s manufacturing PMI stalled in February and March after rising four the previous four months. The 51.8 recorded in January was the strongest since August 2024. The flash estimated put it at 51.4 in March (51.7 in February) and the final reading stands at 51.0.

• Australia’s final March manufacturing PMI was weaker than expected. It slipped to 49.8 from 50.1, the lowest level since last October. It was 51.0 in February, and January’s 52.3, reading the best since the high was recorded last August at 53.0.

• Japan’s final March manufacturing PMI was edged up from the initial estimate of 51.4 to 51.6 (53.0 in February). More importantly, the BOJ’s Q1 Tankan survey was released. While sentiment improved slightly, expectations did not. Capex plans slashed (3.3% vs. 12.6% in Q4 25 survey).

• China’s RatingDog (formerly owned by Caixin) manufacturing PMI tends to have more elevated reading than the other one from the China Federation of Logistics. Earlier today, RatingDog reported that the manufacturing PMI slipped to 50.8 (from 52.1) compared with the CFL’s iteration standing at 50.4 (from 49.0). The RatingDog version averaged 50.3 in 2025 compared with CFL’s average of 49.6.

Disclaimer

Mixed War News Keeps Oil Firm and the Greenback Consolidating

noreply@blogger.com (Marc Chandler) — Tue, 31 Mar 2026 06:47:00 -0400

War developments pulled in both directions, leaving investors on edge On the one hand, Iran struck an oil tanker, carrying Kuwait oil, in port in Dubai. On the other hand, reports suggest President Trump told aides he is willing to wind down hostilities and pressure Iran diplomatically to re-open the Strait of Hormuz. May WTI has held about $100 today and approached $107 a barrel. June Brent reached almost $110 and is now almost flat on the day around $107.50.

The dollar is narrowly mixed with a slightly firmer profile. The jump in the eurozone’s CPI this month was no surprise. There are large options struck at $1.15 that expire today and tomorrow that may help block much of a euro recovery. Tokyo reported softer March CPI but also weaker February industrial production and retail sales. Still, the greenback has held below JPY160. Several Fed officials speak today, including Presidents Goolsbee and Schmid on the economy, while Governor Barr speaks late in the session on regulation of stable coins. With today’s February JOLTS report, the economic focus in the US shifts to the labor market, with the ADP private sector estimate out tomorrow and the March nonfarm payroll report on Friday. The median forecast in Bloomberg’s survey is for a 65k increase from a preliminary estimate of a loss of 92k jobs in February.

Prices

G10

• The five-session slide took the euro from above $1.16 to slightly below $1.1445, which matches the low from March 19. It recovered to almost $1.1500 on news that President Trump again teased about end the war, and without re-opening the Strait of Hormuz. However, the upticks were not sustained, and the euro is hovering around little changed levels. Note that there are 2.5 bln euros options at $1.15 that expire today and another 4 bln euros options that expire there tomorrow. The low set on March 13 (~$1.1410) was the lowest since last August.

• The yen was squeezed higher as some of the late shorts covered yesterday as Japanese officials expressed more concern about the yen’s weakness. Also, the record from the recent BOJ meeting held out the possibility of more than a quarter-point hike. The swaps market is skeptical. It has about 70% chance of a hike late this month and 53 bp of tightening discounted this year. We are skeptical of material intervention. The verbal measures seem to do the trick. The dollar approached but held below JPY160 today. The US dollar set the session low in North America yesterday slightly below JPY159.35. It has held mostly above JPY159.50 so far today. Nearby support is seen in the JPY158.75-JPY159.00 area.

• Sterling took another step lower yesterday. It recorded a low near $1.3175, which it had not been seen since last November. It settled below the lower Bollinger Band (found slightly below $1.3195 today). The losses were extended to $1.3160 today before sterling recovered to around $1.3225. The $1.3240-50 area offers the first hurdle. Options for nearly GBP650 mln at $1.3250 expire today.

• The Canadian dollar fell for the sixth consecutive session yesterday, reaching its lowest level since last December. Still, the 0.2% loss still made the Loonie one of the best performing G10 currencies: only outshone by the Japanese yen (intervention threat) and the Norwegian krone (more sensitive to oil prices). The US dollar reached CAD1.3945 before spending most of the remainder of the North American session in a narrow range (~CAD1.3915-30). The greenback is trading firmly near yesterday’s highs. The next target is the CAD1.4000-20.

• The Australian dollar extended its loss for the seventh consecutive session yesterday. It slipped below $0.6835 to record a two-month low. It consolidated in the North American afternoon, mostly between $0.6850-60. It is confined to about $0.6835-75 today. Options for A$1.6 bln struck at $0.6825 expire today.

• The broad dollar gains lifted it to a new high for the year against the Mexican peso yesterday (~MXN18.1630). The high was scored in the Asia Pacific session. It did not trade above MXN18.15 in North America. The dollar set a marginal new high near MXN18.1645 today but has steadied. A close below the MXN18.00-05 area would help begin repairing the peso’s technical tone.

• The dollar consolidated after reaching a three-day high against the offshore yuan yesterday near CNH6.9270. It pulled back and settled lower for the second consecutive session. The dollar is trading with a slightly heavier bias and fell to about CNH6.9060 today. It is trading little changed on the session, late in the European morning. Continued consolidation looks like the most likely near-term scenario. After setting the dollar’s fix higher for the third consecutive session yesterday, the longest such streak of the year, the PBOC set it lower today (CNY6.9194 vs CNY6.9223).

• The short squeeze of the rupee triggered by a former of capital control (limits on the size of short rupee positions by banks) was soft lived yesterday. Previously, banks were permitted positions up to 25% of their capital. Now, only $100 mln. Local markets were closed for a local holiday and will re-open on April 2.

Other Markets

• Equities fell in the Asia Pacific region and the MSCI regional index fell for the fourth consecutive session. Nearly all the markets fell, but Hong Kong and Australia among the large bourses eked out small gains. Europe’s Stoxx 600 is around 0.70% firmer, as it posts gains for the second consecutive session. US index futures are ~0.75%-0.90% higher.

• Benchmark 10-year yields are lower. The 10-year JGB yield eased a couple of basis points, while the longer maturities fell 7-10 bp. Australian and New Zealand 10-year rates were 6-9 bp lower. European benchmark rates are up to about two basis points lower, as is the 10-year US Treasury yield, which puts it a little below 4.33%.

• Gold edged up to a seven-session high near $4620 but has pulled back and is hovering near $4550 in Europe. Silver reached a four-session high slightly below $73.50 and is continuing to trade near session highs.

• May WTI settled above $100 yesterday and has held above it today. It reached almost $107 before steadying. It is trading firmly around $104 in late European morning turnover.

Data

• Today’s US data are not the stuff that will distract from the war or this coming Friday’s March employment report. On tap are January house prices, the March Conference Board’s consumer confidence, for which the University of Michigan’s survey has stolen the thunder. The Chicago PMI and Dallas Fed’s services activity surveys do not draw much attention, even in the best of times. The February JOLTS report poses headline risk, but the war is bigger. Job opening jumped 6% in January, the largest monthly increase since October 2024. Tomorrow sees the March ADP estimate, auto sales, manufacturing ISM, and the final manufacturing PMI.

• StatsCan is expected to report a flat January GDP for Canada. The monthly GDP prints showed a small decline in Q4 25, and the quarterly estimate showed a 0.6% annualized contraction. It was the second quarterly contraction in 2025. The Bank of Canada projects 1.1% growth this year after 1.7% last year.

• Higher energy prices lifted the eurozone’s 1.2% in March to 2.5% year-over-year from 1.9% in February. The core rate slipped to 2.3% from 2.4%. The swaps market has a little more than a 50% chance of an ECB rate hike at the end of April, down from about an 85% chance last Tuesday.

• The UK took another look at Q4 25 GDP and confirmed it edged up by 0.1% quarter-over-quarter. The median forecast in Bloomberg’s survey is for the economy to expand by 0.3% in Q1 26 and for the next several quarters.

• Minutes from this month’s meeting when the Reserve Bank of Australia hiked its policy rate for the second consecutive meeting. It recognized the high degree of uncertainty generated by the new Middle East war. The futures market is discounting around 67% chance of a hike at next month’s meeting. At its peak on March 13, the pricing in the futures market was consistent with a 25 bp increase and almost a 40% chance of a 50 bp move. Separately, private credit increased by about 0.6% in February. It averaged slightly more than 0.6% a month for the past three quarters.

• Japan had a busy session. Tokyo’s March CPI slipped to 1.4%, a two-year low (February revised from 1.6% from 1.5%) and the core was eased to 1.7% from 1.8%. Last week, the BOJ introduced a new CPI measure that strips out “institutional factors” like education and energy-related subsidies. Going forward, it will be published a couple of days after the national CPI is reported (April 24). Separately, the labor market unexpectedly tightened in February, with unemployment softening to 2.6% from 2.7%. Lastly, after strong gains in January, retail sales and industrial production pulled back in February, -2.0% and -2.1%, respectively.

• China’s March PMI edged up. The manufacturing PMI moved to 50.4 from 49.0. It is only the second time since last March that it was above the 50 boom/bust level. The non-manufacturing PMI rose to a three-month high of 50.1 The composite rose to 50.5 from 49.5 in February. It finished last year at 50.7.

Disclaimer

US Dollar's Advance Continues but Verbal Threats Lift the Yen

noreply@blogger.com (Marc Chandler) — Mon, 30 Mar 2026 06:49:00 -0400

The Middle East war rages on. The Houthis have entered the fray and there is risk that it shuts the Bab El-Mandeb Strait. Aluminum and steel facilities have been reportedly attacked. The US continues to amass forces, including troops, ostensibly for a potential landing operation. There seem to be two “logics” playing out. One is that the US is keeping its military options open to pressure negotiations. Second, if there is a reasonable chance for regime chance, infrastructure can be preserved, but in lieu of regime chance, Iran’s capability will be downgraded.

The risk-off mood is evident in the foreign exchange market, where the dollar is bid. The notable exception is the Japanese yen. The market had pushed the greenback above the JPY160 psychological level ahead of the weekend. It opened firmer but Japanese officials ratcheted up their verbal warnings and the market took heed. The dollar pulled back to around JPY159.50 in European dealing. North American participants may see this as a new dollar buying opportunity.

Prices

G10

• The euro fell for the fourth consecutive session before the weekend. It slipped a little through $1.15. Today, it probed last Monday’s low near $1.1485. Resistance is now seen around $1.1520. The low since the Middle East war began was around $1.1410 on March 13.

• The yen fell to its lowest level in almost two years before the weekend. After several attempts, the dollar rose above JPY160 for the first time since July 2024 and reached JPY160.40. It edged slightly higher earlier today. It has been knocked back to almost JPY159.50 by heightened intervention threats by the Vice Minister for International Affairs Mimura, and the record from the BOJ’s recent meeting, in which a greater usual rate hike was discussed. In comments to the Diet, Governor Ueda also showed concern about the recent developments. The pre-weekend low was near JPY159.45. A break of the JPY159.30 area could see JPY159, but we suspect intraday operators in North America fear intervention less.

• Sterling’s losing streak is extending to the fifth consecutive session with today’s push to $1.3325. Ahead of the weekend, it approached last week’s low seen last Monday slightly above $1.3255. It reached almost a four-month low around the middle of the month near $1.3220. Nearby support is seen in the $1.3180-$1.3200 area.

• The Canadian dollar fell every session last week and reached its lowest level in two months. It remains under pressure today. The greenback reached nearly CAD1.39 ahead of the weekend and nearly CAD1.3920 today. The year’s high was seen in mid-January near CAD1.3930. Stronger resistance may be in the CAD1.3985-CAD1.4000 area.

• The Australian dollar fell for the last six consecutive sessions and has yet to find traction. At the end of last week, it fell to $0.6865, which it had not seen since January 23. Today’s it slipped below $0.6845. There is little on the charts before $0.6800, though it settled the past two sessions below the lower Bollinger Band (found ~$0.6865 today).

• The Mexican peso slumped to new lows for the year before the weekend. The risk-off mood and the dovish rate cut by the central bank saw the peso fall by nearly 1%. It lost around 4.9% this month, coming into today. The US dollar reached almost MXN18.1360 at the end of last week and posted its first close above MXN18.00 since last December. The greenback reached nearly MXN17.1630 today. The 200-day moving average is near MXN18.1925, and the dollar has not settled above it since last April.

• The offshore yuan eased to its lowest level in nearly three weeks. The dollar’s session high was recorded in early North American turnover near CNY6.9235. It reached almost. CNH6.9270 today. The month’s high was seen on March 3, slightly below CNH6.9435. Last week was the first week in nearly four months that the PBOC’s dollar fix rose. It was set at CNY6.9141 before the weekend and CNY6.9223 today, the highest since March 2. The fix has been raised by nearly 0.50% over the past three sessions. Beijing also announced measures to boost outbound investment quotas by about $5.3 bln (to $176.17 bln). Reports also indicate that China may have exports diesel and other fuels to regional neighbors, including the Philippines and Vietnam.

• Initially, the markets bid the Indian rupee up in response to the pre-weekend announcement by the central bank to cap open short rupee positions, forcing a dramatic position adjustment today. The rupee surged by 1.4% but gave it all back. The greenback reached a new record high near INR95.1250.

Other Markets

• Equities continued to sell off sharply in the Asia Pacific regions. Most of the large markets, outside of China were off 2-3%. The MSCI regional index fell 1.5% last week, its fourth consecutive weekly loss. Europe’s Stoxx 600 is up by about 0.25%. It rose 0.35% last week, the first weekly advance in four weeks. US index futures are 0.3%-0.4% higher after falling 2-3% last week.

• Benchmark 10-year yields are mostly softer today. The 10-year JGB yield slipped a little more than one basis point, but the yields on the 30- and 40-year bonds jumped 6-10 bp. European yields are little lower, but the 10-Gilt yield is slightly firmer. The 10-year Treasury yield is off three basis points to almost 4.39%.

• Gold is firm around $4532, the upper end of its three-day range. Silver is also firm near $71.

• May WTI reached almost $103.40 today, its highest level since the March 9 peak near $113.40. Since the high was recorded, the contract has not been below $100. June Brent reached nearly $109.50 today. Last week’s high was a little closer to $110.

Data

• It is a quiet start of a busy week for US data, the highlight being the March jobs report on Friday, which is widely expected to show a modes recovery after a loss of 92k jobs in February, according to the initial estimate. Before it, the US reports February retail sales, March auto sales, and the February trade figures. As the equities markets close today, NY Fed President William speaks on the US economy.

• The European Commission’s March sentiment surveys were out earlier today, and to no one’s surprise, confidence mostly waned. Separately, German states have reported a sharp jump in March inflation, and the national figures, due shortly, may show a jump to 2.8% from 2.0%, spurred by energy prices.

• The UK reported February consumer credit and mortgage lending data. The numbers were mostly a little firmer. The market impact seems minimal.

• Japan will report March Tokyo inflation, and the February jobs data, and preliminary February industrial production first thing tomorrow. Tokyo CPI is expected to be little changed at 1.6% headline and 1.8% core rates. Unemployment looks steady at 2.7%. Both retail sales and industrial production likely fell after strong gains in January.

Disclaimer

April 2026 Monthly

noreply@blogger.com (Marc Chandler) — Sat, 28 Mar 2026 07:15:00 -0400

Wars rarely stay where they start. The Israeli and American military campaign against Iran—the most direct confrontation with Tehran in decades—has sent shockwaves well beyond the Middle East. The fog of war obscures the tactical picture almost daily, but the economic transmission mechanisms are clear enough, and investors who mistake this for a regional skirmish over energy do so at their peril.

One-Two Punch

The first punch is inflationary. Iran is not a bit player in global commodity markets. It sits atop some of the world's most consequential supply chains—not just oil and gas, which command the headlines, but sulfur and urea, which quietly underpin the global food system. Sulfur is a critical feedstock for phosphate fertilizers. Disrupt that supply, and you are not merely raising the price of a barrel of crude; you are raising the price of wheat in Egypt, corn in Brazil, and bread in Lagos.

Energy markets feel the shock first and most visibly, but the agricultural commodity complex is where the second-order damage accumulates, slowly and with devastating effect on the world's most food-insecure populations. Industrial commodities, like aluminum and helium (essential for semiconductor fabrication), have also been disrupted.

The second punch destroys demand. That is the cruel arithmetic of commodity shocks. The same price surge that generates windfall revenues for producers squeezes household budgets everywhere else, sapping the consumer spending that drives global growth. It boosts input costs for many manufacturers, and corporate margins compress. Capital expenditure plans go on hold.

The very inflation that appears to signal economic heat is, in this context, a leading indicator of demand destruction. Central banks find themselves in the most uncomfortable of positions: facing prices that argue for tightening while growth signals argue for caution. It is stagflation's calling card, and it arrived before most were ready to receive it.

Monetary Policy Adjustments

While market participants seem to be inclined to expect a relatively short war on Iran, the pendulum of interest rate expectations swung dramatically. There was a clear bias towards expecting the easing cycle to continue before the war began. The market was sure of Bank of England and Federal Reserve rate cuts; it was less confident but retained a bias toward the European Central Bank and the Bank of Canada cutting rates themselves.

The swaps market was more extreme but even now it is discounting around a 65% chance of a hike at the ECB's next meeting at the end of April. Three rate hikes are fully discounted for this year and about 20% chance of a fourth.

The swaps market has a little less than 60% chance of a Bank of England hike when they too meet on April 30. Three hikes are fully discounted for this year and a little bit more. On the eve of the war, the market had two cuts fully discounted, and a small chance of a third.

Before the war, the futures market was pricing in two rate cuts by the Federal Reserve and a 40% chance of a third. It is now discounting slightly more than 60% chance of a hike by the end of the year.

From Trade Wars to Kinetic Wars

There is a larger context that deserves to be attention. The United States has now bombed at least seven countries since the start of last year. Whatever one's view of the strategic rationale in any individual case, the cumulative picture is of a rules-based international order in accelerating dissolution.

The institutions and norms that once provided a framework for managing conflict—however imperfectly—are being bypassed with increasing frequency and diminishing apology. This is not a temporary disruption. It is a structural shift in the geopolitical environment in which all economic activity takes place. Risk premiums that were compressed during decades of relative stability need to be repriced, and that repricing is neither linear nor orderly.

The truth is said to be the first casualty in a war, but it was already challenged before the first strike. Battle damage assessments are contested. Escalation ladders are unpredictable. A drone strike, a tanker seizure, a miscalculation in the Strait of Hormuz—any of these can move markets in minutes with information that takes days to verify. Volatility is not a momentary condition to be waited out; it is the operating environment, and it demands to be managed accordingly.

Trusted Advisers

Which brings us to the only actionable conclusion available in moments like this: discipline matters more, not less, when the news is loudest. Diversification, position sizing, stop-loss discipline, and a clear-eyed assessment of tail risks are not optional refinements for calm markets—they are the minimum requirements for navigating turbulent ones.

The instinct to act decisively on incomplete information is precisely what fog-of-war conditions seem to tempt. The antidote is a disciplined process, a reliable framework, and trusted advisers who have seen cycles before. In markets shaped by forces this large and this fast-moving, the quality of your decision-making process is the only edge you can reliably control.

Bannockburn World Currency Index

Bannockburn's World Currency Index, a GDP-weighted basket of the currencies of the dozen largest economies, snapped a four-month advance and posted its biggest decline (about 1.25%), since last July. The decline reflected the fact that all of the components of the index fell against the dollar. In fact, the decline brought BWCI back toward the lows for the year recorded before recovering near mid-January.

Among the G10 currencies, sterling fared the best, losing "only" about 1.6%. It may have been supported by the rate expectations adjusted in the UK, which was the most extreme. Before the war began, the market's disappointment with the UK economic data saw the two-year yield approach 3.5%, the lowest since August 2024. At its peak on March 23, it briefly traded above 4.70%. The Canadian dollar fell by about 1.8%, making it the second-best performer among the G10 components.

The Australian dollar was the worst G10 component in the index. It fell by about 3.5% in March, giving back around half of what it had gained in the first two months of the year, which had put it atop the G10. The Australian dollar was helped by the two rate hikes and hawkish tone the central bank delivered. The euro and yen declined by about 2.5-2.6%.

Among the emerging market currencies in Bannockburn's World Currency Index, the Chinese yuan's 0.70% decline was the best performer. The relative stability of the yuan and Chinese interest rates may be encouraging another look by global asset managers. The Brazilian real was in second place with a little more than a 2.2% decline. The others lost more than 4%, with the Russian ruble off around 5.5%. Although the US relaxed a restriction on Russian oil, and Moscow is charging a premium for it over Brent (before the war it was at a discount), the war with Ukraine as intensified. Ukraine reportedly struck an important refinery (Kirishi) in Leningrad as well as other Russian oil processing and industrial facilities in the Baltic region.

Bannockburn's World Currency Index reached its best level since September 2024, around 92.25 in mid-February before falling in March. Escalation of the conflict could push the index another 0.75%-1.0% lower that would bring it to around last April's lows. A ceasefire could see the BWCI back to the mid-February high, A new high would lend credence to our medium and longer-term bearish outlook for the dollar.

U.S. Dollar: The dollar was recovering from the sell-off the incurred when the US was pressing hard on Greenland, but the war on Iran gave it new impetus. Part of it seemed driven by position adjusting, like the unwinding of carry-trades and foreign investors buying back short dollar hedges on equity investments. The US is seen as more able to deal with the energy shock than Europe and this may have encouraged some genuine safe haven demand for dollars. Although there has been a dramatic adjustment in expectations for the Federal Reserve, it has generally been less than in many other countries. Yet, first instance, the surge in US rates is supportive of the dollar, even though interest rate differentials have moved against it. Each time the market grasped the faintest of hopes of a short-term war, the dollar is sold off as risk is embraced. The swaps market is discounting a much higher chance that the European Central Bank, the Bank of England, and the Bank of Japan lift rates in April than the Federal Reserve. The investigation into the Federal Reserve has not formally ended and this is holding up the confirmation process of Powell's successor, Warsh. There is precedent for Powell, who is also a governor (until 2028) to retain the post until a successor is confirmed. Meanwhile, it is possible that the complaint against the administration's 10% tariff under Section 122 of the 52-year-old trade act is heard by the US Court of International Trade. Regardless of the outcome, eventual decision will be appealed. The 150-day limit on Section 122 legislation, without a congressional-authorized extension, ends on July 24.

Euro: In addition to fraying the alliance some more, the US-Israel war on Iran posed a new energy shock for Europe, and the euro was sold to seven-month lows in the middle of March near $1.1400. Brent crude oil rose to a decade-high premium over the US benchmark, WTI. The euro was a little above $1.18 before the war began. The ECB stood pat in March, but the hawks insist that a hike cannot be ruled out as soon as the next meeting at the end of April. The swaps market has about 60% chance discounted for that meeting. Before the war began, the market had around a 55% chance of a cut this year and now has three hikes fully discounted and about a 10% chance of a fourth hike. This seems excessive. The ECB's updated forecasts recognize the two-way risk. The new economic projects shaved growth this year to 0.9% (from 1.2%) and next year's growth to 1.3% (from 1.4%). The inflation outlook worsened. The updated forecast is for 2.6% CPI this year (from 1.9%) and 2.0% next year (from 1.8%). Part of the ECB's reaction function may depend on how the governments respond. ECB President Lagarde explicitly called for governments to limit energy assistance to temporary and targeted efforts.

(As of March 27, indicative closing prices, previous in parentheses)

Spot: $1.1509 ($1.1812) Median Bloomberg One-month forecast: $1.1607 ($1.1900) One-month forward: $1.1525 ($1.1832) One-month implied vol: 7.8% (5.9%)

Japanese Yen: The dollar rose to almost JPY160 last month, its highest level since July 2024. The war had a more muted effect on Japanese markets than it did in Europe or the United States. The 10-year yield rose a little more than 25 bp and the two-year yield rose by around 17 basis points. Before the war began, the swaps market was pricing in about 44 bp of tightening this year and is now discounting about 56 bp. The Bank of Japan next meeting concludes on April 28. Given the upward revision in Q4 25 GDP (1.3% at an annualized rate from 0.2%) and the strong start of this year (January industrial product rose by 4.3%, more than in 2025, and a 1.7% increase in tertiary activity, which was also more than last year), we suspect the odds of a BOJ rate hike in April are more than the 69% chance being discounted by the swaps market. The largest labor union federation secured a preliminary increase for average pay of 5.26%, topping 5% for the third consecutive year. The dollar reached JPY160.30 on March 27, the first breach of JPY160 since 2024, when it got to almost JPY162. Returning there seems a strong possibility. Bank of Japan and the Ministry of Finance officials seem more sophisticated than drawing a fixed intervention line at JPY160. It has been a broad dollar advance, and the greenback's rise against the yen has been orderly. The yen's 2.5% loss puts in near the middle of the performance of G10 currencies since the war began. It has not simply been a one-way market. One-month implied volatility is firm, mostly chopping between 9% and 10% this month, well off the January peak near 11.5%.

Spot: JPY160.31 (JPY156.05) Median Bloomberg One-month forecast: JPY158.52 (JPY154.00) One-month forward: JPY159.90 (JPY155.65). One-month implied vol: 9.9% (9.2%)

British Pound: The British economy was struggling before the war began, and the fiscal headroom was limited. The economy unexpectedly stagnated in January. Industrial production contracted and services output was flat. Before the war began, the swaps market was convinced that the Bank of England would cut rates at least twice this year with around an 80% chance of a cut in March. The spike in energy prices caused a violent shift in the market's outlook. The BOE stood pat at last month's meeting and some members of the Monetary Policy Committee seemed open to a rate hike. The next meeting is at the end of April, and swaps market has about 50% chance of a hike discounted and has almost 75% chance of at least two more hikes this year. The two-year yield jumped more than 100 bp last month. Despite a small pullback, it is still up around 95 bp. This seems to be excessive. And to be sure, sterling found little comfort from the surge in rates. After posting a February high near $1.3715, sterling overshot the $1.3250-$1.3300 target we suggested and found support near closer to $1.3220. To confirm a bottom is in place, sterling needs to re-establish a foothold above the $1.3465 area, while a break of $1.3180-$1.3200 could encourage a move toward $1.3000-50.

Spot: $1.3259 ($1.3482) Median Bloomberg One-month forecast: $1.3306 ($1.3600) One-month forward: $1.3260 ($1.3480) One-month implied vol: 8.4% (7.2%)

Canadian Dollar: In the generally firmer US dollar environment in March, the Canadian dollar was among the best performers in the G10. It lost about 1.65%, only bested by the British pound. We think that the conventional narrative often exaggerates the link to oil prices. In fact, the rolling 30-day correlation between changes WTI and the US dollar's movement against the Canadian dollar have swung from inverse to slightly positive since the middle of March, for the first time since early last November. Our alternative explanation is the Canadian dollar moves in the US orbit and in a rising greenback environment does relatively better, and the opposite is also true. We note that the volatility of the exchange rate is typically the lowest among the major currencies. The swaps market had been discounting about a 45% chance of a cut by the Bank of Canada before the war began but is now pricing in two hikes fully and about 50% chance of a third hike. While Bank of Canada Governor Macklem was adamant that the central bank would not allow prices to fuel persistent inflation, he recognized that unlike the energy shock in 2022, the economy is soft. In February, Canada lost the most jobs in four years. The Canadian economy has been rattled a drop in exports and business investments, spurred by the shift in US policy. The US is engaging in separate talks with Mexico and Canada over the USMCA, with Prime Minister Carney looking to diversify its trading partners. The US dollar has risen above the down trendline from drawn off the late November 2025, January 2026, and mid-March 2026 highs. The mid-January high, near CAD1.3930 may be the next target and then the CAD1.40 area beckons.

Spot: CAD1.3893 (CAD 1.3650) Median Bloomberg One-month forecast: CAD1.3795 (CAD1.3700) One-month forward: CAD1.3875 (CAD1.3630) One-month implied vol: 5.2% (4.9%)

Australian Dollar: A little more than two weeks into the war on Iran, the Reserve Bank of Australia delivered its second interest rate hike of year. A week before the hike, the Australian dollar reached almost $0.7190, its best level since mid-2022. It spent most of the month consolidating within the range seen on March 3 (about $0.6945-$0.7125) before sliding for five consecutive sessions and pushing through support near $0.6900. The break could signal another cent, or more, of losses, if there is no near-term resolution of the war in the Middle East. There has been a significant shift in market expectations for the trajectory of RBA policy for the remainder of the year. Before the war began, when the overnight cash target rate was at 3.85%, the futures market expected the rate to be around 4.20% at the end of the year. The cash target rate is now 4.10% and the pricing in the futures market sees it at 4.82% at the end of the year. As with expectations for many of the G10 central banks, this seems excessive. The central bank meets next in early May, and the futures market has almost 80% chance of a hike. We are less sanguine given the two hikes already delivered in succession. The Reserve Bank of New Zealand meets on April 8, and the risk of a rate hike seems minimal. The divergence of monetary policy has helped lift the Australian dollar to its best level against the New Zealand dollar since 2013, reflecting around a 4.75% move this year. A downside correction appears to have begun, which adds an additional drag on the Australian dollar.

Spot: $0.6874 ($0.7118) Median Bloomberg One-month forecast: $0.6950 ($0.7000) One-month forward: $0.6875 ($0.7120) One-month implied vol: 11.8% (9.3%).

Mexican Peso: The Mexican peso had its worst month since August 2024, when it fell almost 6%. It depreciated by about 4.5% in March. Its decline was driven by several considerations. Like other high yielding emerging market currencies, it had benefitted from carry trades. The dollar was used to fund purchases of Mexican bonds and when the bonds were liquidated the short dollar was covered. Another consideration was the broad risk-off activity, and this also weighed on the Mexican peso. The inverse 30-day correlation between changes in the S&P 500 and the dollar against the peso reached the most extreme since mid-2020 (-0.80 in mid-March). The central bank surprised many with a rate cut in late March to bring the policy rate to 6.75%, despite inflation pushing above the top end of the 2%-4% target. The central bank also signaled it may cut rates again. We expect that the end of hostilities will see the peso recovery quickly and remain more bullish the peso than the market, where the median in Bloomberg's survey sees the dollar around MXN17.88 at the end of the year. That said, we recognize that the USMCA talks are a wild card even though the mercurial US president negotiated what he said was the best trade agreement ever.

Spot: MXN18.1188 (MXN17.2270) Median Bloomberg One-month forecast: MXN17.9743 (MXN17.60) One-month forward: MXN18.1655 (MXN17.2765) One-month implied vol: 13.9 (9.2%)

Chinese Yuan: China seems like one of the few beneficiaries of the US-Israel war on Iran. The disruption in the energy market may boost the demand for solar panels and electric vehicles, which China dominates. While China bullies its neighbors, a tragedy of small countries next to large ones, it has shown restraint compared with Russia and the United States. Ships carrying Iranian oil to it have not been molested in the Strait of Hormuz. Reportedly, Tehran is encouraging others to pay for oil in yuan for safe passage. The stability of its onshore bond market has drawn renewed interest from some global asset managers. Beijing is lifting all tariffs on more than 50 African countries, which offers stark contrast with the US broad tariff regime. Nor has Beijing used the broad gains of the greenback since the start of the war to depreciate the yuan. At the end of the third week of the war, the PBOC set the yuan's reference rate against the dollar at its strongest level since April 2023. Still, the rise in oil and food prices may help offset the disinflationary forces in China, it will do nothing to stimulate demand. The offshore yuan is consolidating in a roughly CNH6.86-CNH6.95 range. The dollar bottomed against the onshore yuan near CNY6.8315 in late February. We suspect it can fall to CNY6.70-CNY6.75 later this year, which is somewhat more bullish than the consensus. However, first, the PBOC will not ignore the dollar's broad strength amid the hostilities with Iran. Instead, it may acquiesce to the greenback's strength and allow it to recover back into the CNY6.9250-CNY6.9500 area.

Spot: CNY6.9112 (CNY6.8620) Median Bloomberg One-month forecast: CNY6.9067 (CNY6.9250) One-month forward: CNY6.9145 (CNY6.8830) One-month implied vol: 3.7% (3.4%)

Disclaimer

The Dollar and Oil are Bid

noreply@blogger.com (Marc Chandler) — Fri, 27 Mar 2026 06:49:00 -0400

The dollar and oil remain firm. The market has a had muted reaction to President Trump’s announcement late yesterday that it will extend its pledge not to strike Iran’s energy infrastructure for ten days (April 6). At the same time, reports indicate the US is considering sending more troops to the area. The logic of “escalation to de-escalate” continues to play out and this will dampen risk appetites ahead of the weekend. Meanwhile, Beijing is taking a page from the US playbook and opened investigations into US trade practices (supply chains and renewables) apparently in response to recently announced US Section 301 investigations.

This is the first time since late last November, the PBOC lifted the dollar’s reference rate on a weekly basis. Still, the restrain Beijing is showing is notable. Since the war began, the yuan has been among the strongest currencies in the world. Its roughly 0.7% decline is half of the loss seen among best G10 currency and most emerging market currencies. Meanwhile, a large sell-off of Japanese government bonds keeps the yen under pressure and the greenback could push above JPY160 today for the first time since mid-2024.

Prices

G10

• The euro extended yesterday’s losses marginally and fell to about $1.1515 today in Europe. For the fourth session, it remains in the range set Monday, when it reached a low of about $1.1485. Recognizing the risk of some “escalate to de-escalate tactics over the weekend, there seems little compelling reason to resist extending the euro’s decline for the fourth consecutive session and the third consecutive week. There are 1.16 bln euros of options at $1.1525 that expire today.

• The yen is flirting with its recent lows as the dollar hovers near but below JPY160, with a three-day down draft in tow. Yet its performance since the war began is around the mean among the G10 currencies. Although Finance Minister Katayama cautioned against speculative moves (and, as US did previously, suggested intervention in the oil futures market was possible), the current conditions, intervention seems to be a minor risk. It would not be surprising to see the dollar push above the much-talked-about level today ahead of the weekend. There are options for almost $640 mln struck at JPY160 that expire today.

• Sterling also has fallen for the past three sessions. Options for about GBP925 mln at $1.33 expire today. Yesterday’s low was about $1.3310, and in Europe today, after the soft retail sales report, sterling is probing $1.33 ahead of the North American opening. Sterling continues to trade within Monday’s range when it found bids a little below $1.3260.

• The Canadian dollar has risen in one of the past eight sessions coming into today. It is still the second-best performer in the G10 since the war began, but it is still off a little more than 1.5%. The greenback reached CAD1.3865 yesterday, its best level in two months. It is consolidating quietly today in the upper end of yesterday’s range. It has held above CAD1.3845. The next technical target may be in the CAD1.3900-CAD1.3930 area.

• The five-session slide took the Australian dollar through support around $0.6900 yesterday to about $0.6875. There is little chart support until closer to $0.6800. A note of caution is that the Aussie settled below the lower Bollinger Band yesterday (found near $0.6900 today), which is one way to quantify recent losses. It is trading between roughly $0.6870 and $0.6910 so far today.

Emerging Markets

• The dollar traded firmly against the Mexican peso yesterday, even before the central bank’s unexpected rate cut. It rose to new session highs almost MXN17.96 after the rate cut. The latest inflation report, covering the first half of March, showed both the headline and core rates above upper end of the 2%-4% band. The greenback is pushing higher today, and it is flirting with MXN18.00 in Europe. Monday’s high, after the US initial ultimatum the greenback reached a new high for the year near MXN18.09. The dollar has traded above MXN18.00 two times this month on an intraday basis but has not settled above it since the middle of last December.

• The yuan softened yesterday in the face of the greenback’s broadly firmer tone. The dollar traded above CNH6.9200 for the first time in two-and-a-half weeks. It reached CNH6.9230 today before retreating to the session low near CNH6.9145. The high for the month was recorded on March 3 near CNH6.9435. The PBOC set the dollar’s fix at CNY6.9141 (CNY6.9056 yesterday and CNY6.8898 last Friday. It is the first higher dollar reference rate on a weekly basis in four months, and only the second time since the end of last September.

• Making up for yesterday’s holiday, the Indian rupee lurched lower today. The dollar reached a new record near INR94.8465. Foreign investors continue to sell Indian stocks and bonds. The rupee has fallen around 4% since the war began. The government efforts to cushion the blow from rising energy prices, like cutting taxes on auto fuels heightens fiscal concerns. INR95 is the next psychological target.

Other Markets

• Equities were mixed in the Asia Pacific regions. Japan’s Topix rose, as did Chinese and Hong Kong indices, but South Korea, Taiwan, Australia, New Zealand slipped. India’s indices lost more than 2%. The MSCI index for the region is off about 1% this week. It has fallen for the fourth consecutive week. Europe’s Stoxx 600 is down about 1% today after yesterday’s decline of a similar magnitude. It is holding on to a small gain for the week. US S&P and Nasdaq composite have been alternating daily between gains and losses this week. That may be challenged today. After yesterday’s losses, the index futures point to early losses.

• Bond markets are under pressure. US coupon auctions this week have been weakly received and direct bidders (large institutional investors) have pulled back, which has left primary dealers to pick up the slack and absorbed the most in a few years. Custody holdings at the Federal Reserve (Treasuries and Agencies) fell for the fifth consecutive week. They are down by about $66 bln since the war began. Japan’s 10-year yield rose 11 bp today. It was four basis points lower on the week coming into today’s session. The 30-40-year bond yield jumped around 20 bp today. European benchmark yields are 4-9 bp higher, and the 10-year US Treasury yield is near 4.46%, up almost five basis points today and nearly 12 bp higher on the week.

• Gold is consolidating in yesterday’s range. It settled near $4492 last week and is near $4425-$4430 now. Silver is trading within yesterday’s range, as well. It settled slightly below $68 last week and is near $69 now.

• May WTI is trading higher and is at its best level since Monday, as it tries to re-establish a foothold above $96. Monday’s high was near $101.65 and the war high from March 9 was about $113.40. Note that it is settled near $98.25 last week and a close below there would be the first lower weekly close since mid-February.

Data

• In the US, the final results of the March University of Michigan consumer survey are due. It ought not to be surprising if confidence waned and expected inflation rose.

• Mexico is expected to report a modest decline in February unemployment (2.5% vs. 2.7%). It averaged 2.65% last year, practically flat from the 2024 average. Mexico also reports February trade figures. After a blow-out record deficit in January (~$6.48 bln), a modest surplus is expected in February. There are strong seasonal patterns. The trade balance almost always (15 years without fail) deteriorates in January and improves in February (19 consecutive years).

• The ECB’s survey of inflation expectations slipped in February. The one- and three-year outlooks eased to 2.5% from 2.6% and the three-year outlook. That was before the energy and food shock that hit in March. Spain reported its EU harmonized March CPI jumped 1.5% for a 3.3% year-over-year pace (from 2.5%). This gives a sense of what to expect next week when the EMU’s preliminary March CPI estimate is published.

• British consumers could not sustain the pace of retail sales seen in January, when they rose by a heady 1.8%. February retail sales fell 0.4% with and without gasoline. Economists surveyed by Bloomberg expect a steeper pullback. Still, recall that UK’s January unexpectedly contracted despite the busy shoppers.

• China reported February industrial profits on its year-to-date year-over-year style. The 15.2% surge is the most since the pandemic recovery in 2021. Profits had contracted in most of H1 25 but turned positive in the second half. They rose by 0.6% last year, the first annual increase since 2021. Separately, China reported a record $243.8 bln quarterly current account surplus (Q4 25). Lastly, we note that Beijing has launched trade investigations into the US (supply chain practices and reusable products), which seem aimed to give it chits given new the US Section 301 investigations.

Disclaimer

Hope Wanes, USD Little Changed while Bonds and Stocks Weaken

noreply@blogger.com (Marc Chandler) — Thu, 26 Mar 2026 06:50:00 -0400

The US dollar is trading in narrow trading ranges against the G10 currencies today, but the calm in the foreign exchange market belies stress in other parts of the capital markets. Equities and bonds have been sold. The hope that an end to the Middle East conflict has faltered amid the conflicting signals from the US, which is sending thousands of more troops to the region, fanning fears of a ground invasion of some time, while Tehran countered US proposals with a set of their own conditions. Front-month WTI and Brent oil futures are trading new highs for the week.

President Trump’s initial 48-hour ultimatum was replaced with a five-day grace period, which ostensibly ends tomorrow. The uncertainty hangs heavy and can be expected to dampen risk appetites today and tomorrow barring constructive developments. The conflict can be on the edge of significant escalation or a resolution.

Prices

G10

• The euro was already struggling to sustain the upside momentum after stalling near $1.1630 yesterday, in front of Monday’s high (~$1.1640), but the Iranian news agency rejection of the US cease-fire proposal was a buzzkill. The single currency subsequently was sold briefly through Tuesday’s low, slightly below $1.1560. It spent most of the North American afternoon trading in a narrow range below $1.1580. The euro is in a narrow range today, unable to make much headway above $1.1570, and hovering near a three-day low, slightly below $1.1550. A convincing break may target $1.1525 ahead of Monday’s low (~$1.1485). There are almost 2.6 bln euros of options at $1.15 and nearly 2 bln euros of options at $1.16 expiring today.

• Even without the benefit of higher US yields, the dollar crept higher against the Japanese yen yesterday. The session high was recorded in the NY afternoon near JPY159.50. This was marginally above Tuesday’s high (~JPY159.20) but below Monday’s high (~JPY159.65). The dollar remains firm but trading choppily between about JPY159.30 and JPY159.55. The market has not given up on JPY160.

• Sterling traded inside Tuesday’s range yesterday. And that range of about $1.3360 to $1.3435 was the narrowest range in two weeks. It has been pushed to a three-day low near $1.3335 today before recovering to about $1.3360. Nearby support may be seen around $1.3315-20, but the key is Monday’s wide range (~$1.3255-$1.3480). Only a break of that range seems notable. Options for GBP1.3 bln at $1.3350 expire today.

• The Canadian dollar has come under pressure in this week. The greenback was initially sold on Monday to about CAD1.3670 on Monday, a five-day low, but recovered to settle around CAD1.3720. It reached CAD1.3785 on Tuesday, and yesterday tested CAD1.3820. It approached CAD1.3840 in Europe today. Initial resistance is seen around CAD1.3850, and above there, targets the CAD1.39 area. The US dollar settled above the 200-day moving average for the first time in two months. It also settled above the upper Bollinger Band (found ~CAD1.3830 today).

• The Australian dollar was turned back from a brief attempt on $0.7000 and was sold back to almost Tuesday’s low (~$0.6940). It slipped further today to a little below $0.6930. The Aussie remains within the range set Monday (~$0.6910-$0.7060). Yet, for the third consecutive session, it frayed the lower Bollinger Band (~$0.6935 today). A break of $0.6900 is arguably more technically significant than close above $0.7000. Options for almost A$1.25 bln at $0.6900 expire today.

• The Mexican peso consolidated in uneventful activity yesterday near its best levels in the past week, apparently helped as it were by the risk-on mood that lifted stocks and bonds. Indeed, Mexico stocks and bonds were among the best performers yesterday. Its 10-year dollar bond yield fell 10 bp and the local currency bond yield fell almost 20 bp. The Bolsa rallied about 2.8%. The dollar has forged a floor around MXN17.67 in recent days. The 20-day moving average is near MXN17.67, and the greenback has not settled below it since the war began. The US dollar is trading higher today and approached MXN17.82. Tuesday’s high was slightly above MXN17.89 and a band of resistance may extend toward MXN17.94. It seems binary: Risk-on in response to a resolution and the peso, likely will return as a market favorite. Risk-off on escalation can push the dollar back above MXN18.00, where it topped out on an intraday basis twice this month.

• The dollar traded with a slightly firmer bias against the yuan yesterday and posted the highest settlement so far this week, slightly above CNH6.90. It is firmer today, near CNH6.9130 in the European morning. Monday’s high was closer to CNH6.92. The PBOC set the dollar’s reference rate at CNY6.9056. (CNY6.8911 yesterday). We had detected a subtle shift and had anticipated that last week could have been first weekly increase in the dollar’s reference rate since last November. While this did not materialize, it could be this week. Stay tuned.

• Indian markets were closed today for the Ram Vamami holiday.

Other Markets

• Yesterday’s equity gains in North America failed to inspire buying today. The only Asia Pacific market to resist the down draft was New Zealand. South Korea led the retreat with a 3.2% drop and the index of Chinese companies that trade in Hong Kong shed 2.25%. Europe’s Stoxx 600 is snapping a three-day advance and giving back most of yesterday’s1.4% gain. US index futures are off around 0.75%-1.0%.

• Bonds are also being sold today. The 10-year JGB yield rose by two basis points, while European yields are most 6-9 bp higher, Italian bonds are the outlier, with the benchmark yield up 11 bp. The 10-year Treasury yield is up four basis points to a little above 4.37%.

• Gold and silver are trading heavily and are below yesterday’s lows. A break of $4400-10 could target $4350 for gold. A break of $67.50 could spur a move to $66 for silver.

• May WTI peaked yesterday slightly above $91.70. Today it has not been below $90.70 and reached a three-day high a little above $94.00. A push above $95 leaves little in the way a retest on $100. Monday’s high was near $101.65.

Data

• US weekly initial jobless claims may draw passing interest today. They have slipped lower in back-to-back weeks through March 13 for the first time this year. The March jobs report is out next Friday, April 3, and the early forecasts are coming in around 51k, after falling 92k in February, which was distorted by strikes and poor weather.

• Canada releases its establishment survey for January employment today. In December, when Canada reported an 8.2k increase in employment, the establishment survey reported a 35.4k decline. Canada reported a 24.8k decline in employment in January. This time series does not typically capture the market’s attention, and it seems particularly dated now.

• Mexico’s central bank meets today. Nearly half of the economists polled by Bloomberg expect a cut. The swaps market is pricing in steady policy. The mid-March CPI readings showed both the headline and core rates are above the upper end of the 2%-4% target and may be accelerating. The economy does appear to have been struggling again before the war on Iran began.

• The eurozone’s M3 money supply grew 3.0% year-over-year in February after a 3.2% pace in January (initially 3.3%). Lending figures were little changed.

• As widely expected, Norway’s Norges Bank stood pat today, with its deposit rate at 4.0%. It was a hawkish hold in the sense that it signaled a hike would likely be appropriate, and the central bank’s projections showed a quarter point hike before the end of the year. The swaps market had a hike fully discounted at the end of H1 26 yesterday, and after today’s central bank meeting, it now has about a one-in-three chance of a 50 bp move. Before the war in Iran began, there was slightly more than a 10% chance of an increase by then.

Disclaimer

Thoughts on the Dollar

noreply@blogger.com (Marc Chandler) — Wed, 25 Mar 2026 10:15:00 -0400

The dollar's resilience since the war began is not a mystery, but it is being misread. The Dollar Index has appreciated roughly 1.8% this month alone, following a modest 0.65% gain in February after January's 1.35% slide. Against every G10 currency, the greenback has advanced since hostilities commenced. All but the Canadian dollar and sterling have surrendered more than 1.5%. The move looks like strength. It is, in part. But it is also a story about positioning, leverage, and the jump in US rates.

Unpacking Safe Haven

Two channels are driving the dollar's gains. The first is mechanical: short covering. For months, traders had used the dollar as a funding currency; borrowing cheap in greenbacks to reach for yield in Latin American bonds, for example, and other higher-beta assets. When those risk positions went south, and they invariably do, they were sold, and the funding currency was bought back, which gives the appearance of safe-haven demand.

Another layer of the same dynamic came from foreign equity investors who had been financing the US current account deficit, and many of them with dollar hedges layered on top. As US stocks tumbled, the shares were liquidated and the short-dollar hedges were lifted, or, for some, the drop in equity values left them simply over-hedged, and they trimmed accordingly. Either way, the bid for dollars was structural, not discretionary.

The second channel is more recognizable as genuine safe-haven demand. War compresses risk appetite, and with the United States now the world's largest energy producer, some investors judge the American economy as comparatively insulated from the oil shock radiating out of the Gulf. That is a reasonable, if incomplete, argument. It is also the kind of narrative that tends to have a shorter shelf life than the positioning adjustment does.

US Rates more than Differentials in the First Instance

What is less appreciated is how sharply the rates landscape has shifted, and how that is influencing the dollar in ways that go beyond the usual interest rate differential logic. Since the war began at the end of last month, the two-year Treasury yield has risen roughly 53 basis points. The ten-year yield is up about 45 bp. While theory says interest rate differentials are important, in the short run the jump in US rates seems to offer a better explanation of the dollar’s strength. Perhaps when rates spike on supply shocks and inflation fears rather than growth optimism, it changes the dynamics.

And then there is the Federal Reserve. Before the war, fed funds futures had fully priced two cuts this year and assigned roughly 40% odds to a third. By the time, the FOMC met last week, some of that easing had been walked back, but the market still expected at least one cut. The statement moved the needle little. It was Chair Powell's framing in the press conference that did the heavy lifting. He played down the seemingly incongruous projections which showed the median view having increased the GDP forecast and growth forecasts while keeping the unemployment rate steady and repeating the one rate this year that was seen in December 2025.

Powell was also unusually candid about the Fed's limitations. He acknowledged that missing the inflation target is more the norm than the exception in recent years and that the war poses genuine challenges for both mandates simultaneously.

Higher Prices Bite

Meanwhile, at the gas pump, the political economy is shifting in real time. Retail gasoline prices have risen every single day since the war began — weekends included — adding roughly a dollar per gallon to bring the national average close to $4.00. Grocery prices appear to be following. This is the kind of inflation that is felt viscerally, that does not require an economics degree to understand, and that generates political pressure with a speed that quarterly GDP estimate does not.

Against this backdrop, the Fed's framing of the labor market deserves scrutiny. Powell's characterization of "recent stability" downplayed the loss of 92,000 jobs in February. He acknowledged, correctly, that the administration's immigration policies have weighed on labor force growth. That is the third policy (joining the tariffs and war) that are deterring this Fed and the next chair from being able to deliver the lower rates that the president has incessantly and angrily demands.

Powell made it clear that he intends to serve as Chair until his successor is confirmed by the Senate, which will not go forward until the investigation is over. He also indicated he would not relinquish his governor seat (term runs into 2028) while investigation is ongoing in any fashion. This is neither unprecedented nor common. He sees it as a defense of institutional independence. Markets should take him at his word.

DXY

Technically, the Dollar Index peaked for the year on March 13 near 100.50. Since then, it has found support just below 99.00, hovering above the 20-day moving average which now sits a fraction above that level. The index has spent little time above 100 since mid-last year, and the daily momentum indicators are rolling over from overbought territory. That argues for some consolidation. But speculative positioning, though it has shifted dramatically — net long euro positions collapsed from around 150,000 contracts to barely 20,000, and the market has swung to nearly 70,000 contracts net short yen — does not yet look extreme enough to make a compelling case that the adjustment is finished, especially with the fear the war escalates wafting in the air.

The war premium in the dollar is real. So is the rate support. But both are contingent on an escalation path that remains deeply uncertain. The five-day pause announced this week is being viewed skeptically, and rightly so. There still seems to be a risk that the war escalates. The US is moving more troops to the area, and this is spurring speculation that the US could take Kharg Island, a critical export facility for Iranian oil.

Until there is more clarity, the greenback will retain a bid. When clarity comes, the unwind could be swift. We have seen a couple of such responses.

Disclaimer

Hope Lifts Stocks and Bonds

noreply@blogger.com (Marc Chandler) — Wed, 25 Mar 2026 06:47:00 -0400

There continues to be hope in the capital and commodity markets that a US-Israel war on Iran can be brought to a conclusion soon. While news reports indicate that the US had drafted a 15-point peace plan that has been delivered to Iran via Pakistan, other reports indicate that US is sending more people and weapons to the region. Iran has reportedly not yet formally responded to the proposal and has continued missile and drone attacks in the region. Meanwhile, a few more ships appear to have transited the Strait of Hormuz.

While the market has jumped back into risk assets at the little glimmers of hope along the way of a short conflict, the derivatives market continues to price in seemingly hawkish central bank policy responses, even if not as extreme as last week. The dollar was sold in a flurry of activity late in North America yesterday, but follow-through has been limited today, and the greenback is trading with a firmer bias. Equities and bonds are recovering, while oil prices (WTI and Brent) are pinned in narrow ranges near yesterday’s lows.

Prices

G10

• Yesterday, the euro surrendered about half of the gains posted on Tuesday when many latched on the “five-day grace period” seemingly granted by President Trump as a sign of progress toward ending the conflict. Yesterday the market was less sure. However, late in the session, a new wave of optimism washed across the markets and in thin, late North American trading, the euro spiked to new session highs, slightly shy of $1.1630. Monday’s high was closer to $1.1640. It is consolidating today, mostly between $1.1585 and $1.1630. The $1.16 area may still be a battleground. Options for 1.8 bln euros that expire at $1.1605 today. Another pile for nearly 1.4 bln euros expires at $1.16 tomorrow.

• For the third consecutive session, the dollar held above the previous session’s low against the Japanese yen yesterday and is trying to extend it today. The greenback recorded an inside yesterday. It is trading quietly today and has been capped near JPY159.20. The market does not appear to have given up on the JPY160 area. There are $885 mln of options that expire at JPY160 today.

• Sterling gave up a little more than half of Monday’s gains yesterday and found bids above $1.3350. In peaked around $1.3445 in the flurry of activity in late North American turnover yesterday. It is trading inside yesterday’s range so far today and is in the narrowest range in nearly two weeks: ~$1.3370-$1.3435. Options for GBP1.14 bln at $1.3350 expire tomorrow.

• The US dollar reached CAD1.3785 yesterday, a two-month high, and where options for $422 mln expire today It is bid in European turnover and reached almost CAD1.3800. We have been targeting the CAD1.38 area, which houses the 200-day moving average and the (50%) retracement of the greenback’s decline from last November’s high (~CAD1.4140). Options for $590 mln expire at CAD1.38 today. A convincing push above there could target CAD1.3850.

• The Australian dollar fell for the third consecutive session, and is extending it into the fourth session today, although it is inside yesterday’s range. It settled below $0.7000 for the second consecutive session. It recovered almost back to $0.7000 late yesterday after initially sold slightly through $0.6940. Monday’s low was near $0.6910. Options for A$1.4 bln expire at $0.6950 today, and the low so far is about $0.6960. A break of the $0.6890-$0.6900 area would inflict technical damage that could spur at least another cent-decline.

• The Mexican peso consolidated yesterday and enjoyed as slightly firmer close amid the late US dollar retreat. The dollar had already begun coming off the late NY morning high and thin dealings after the NY markets closed, the greenback was sold to new session lows near MXN17.70. It has edged a little lower today. Since the war began, the dollar has poked above MXN18.00 on an intraday basis twice, but both times, for different reasons, the dollar came off and settled closer to session lows. The 20-day moving average is around MXN17.6660 and the greenback has not settled below it since the war began.

• The dollar posted an inside day against the yuan yesterday. The dollar traded in wider intraday ranges in the first week or so of the war but nearly two weeks now has been broadly range bound~CNH6.860-CNH6.92). It remains within Monday’s range so far today (~CNH6.8775-CNH6.9185). The five- and 20-day moving averages of the dollar against the onshore yuan have converged a little above CNY6.89. The PBOC fixed the dollar at CNY6.8911 (CNY6.8943 yesterday).

• The Indian rupee fell to a record low today. Intervention by the RBI failed to prevent the US dollar from edging to a marginal new high against the rupee near INR93.9835. Global asset managers have liquidated around $11 bln of Indian equities this month. Bonds in the international indices have also experienced record outflows. Month-end importer dollar demand also has been reported.

Other Markets

• Although US indices finished lower yesterday, hope that a ceasefire can soon be agreed up in the war on Iran is helping lift equities today. Nearly all the markets in the Asia Pacific region rallied earlier today with most of the large markets up more than 1%. Europe’s Stoxx 600 is up for the third day, which if sustained would be the longest advance in more than a month. US index futures are up 0.8%-1.0%.

• Bonds are rallying. While the 10-year JGB yield fell by less than a basis point, the yield fell 9-11 bp in Australia and New Zealand. Benchmark yields are off mostly 5-8 bp in Europe and peripheral spreads have narrowed. The 10-year US Treasury yield is off almost four basis points to 4.32%.

• Gold is trading at new high for the week. It reached a little above $4600 after bottoming Monday slightly below $4100. The next technical target may be around $4685. Silver approached a four-day high near $74.55 and is consolidating now closer to $72.50. Monday’s low was near $61.

• May WTI is confined to an extremely narrow range today (~$86.60-$89.55). The week’s low was recorded Monday near $84.35. The 20-day moving average is around $85.60, and the May contract has not traded below it since the war began.

Data

• The US February import and export prices seem dated now since the war, but import prices likely turned higher on a year-over-year basis, while the base effect warns that export price increases may have slowed at rising 2.6% in January. They peaked at 3.9% last September. Q4 25 current account deficit is also due. It may be the smallest in a few years. For the year as a whole, it may be smaller than 2024 but it still will be the second largest on record. The report tends to have little market impact.

• After falling by 0.5% in January, UK consumer price index rose by 0.4% in February. Yet the base effect kept the year-over-year pace steady at 3.0%. The core rate ticked up to 3.2% from 3.1%. Service price inflation slowed to a still elevated 4.3% from 4.4%. The swaps market is discounting about a 70% chance of a hike next month. At the end of last week, it was seen as almost 80% probability.

• Germany’s IFO survey showed weaker sentiment. The current assessment and expectations softened in March, and the overall business climate assessment stands at 86.4 (88.4 in February, revised from 88.6), the weakest since last February.

• Australia’s CPI was flat in February, and the year-over-year rate edged down to 3.7% from 3.8%. The trimmed mean rose by 0.2%, leaving the year-over-year rate steady at 3.3%, given the revision from 3.4% initially. The Reserve Bank of Australia raised rates twice this year and before the war on Iran started, the futures market was discounting another hike fully and almost a 50% chance of yet another. The market peaked on Monday, with three hikes fully discounted for the remainder of the year. Now, the futures market has two hikes fully discounted and about a 25% chance of a third.

Disclaimer

Yesterday's Optimism Turns More Guarded

noreply@blogger.com (Marc Chandler) — Tue, 24 Mar 2026 06:51:00 -0400

The markets remain on edge. President Trump’s five-day hiatus announced yesterday is looked upon suspiciously. Much of what has been claimed seems to be part of the psych-operations associated with warfare, like initiating the war during negotiations. Many seem to share our sense that the five-day period will allow more US troops to enter the region and perhaps attempt to take Kharg Island. The US strategy seems to waver between destroying Iran’s capability to even make a paperclip to seeking regime change and keeping the energy infrastructure intact to allow the new regime to rebuild. Meanwhile, more ships appear to be passing through the Strait of Hormuz, which appears becoming a toll booth for $2 mln passage fee to be paid in yuan. Meanwhile, the US has given Europe an ultimatum of its own: Agree to the trade deal by March 26 of lose favorable access to the US liquified natural gas.

Follow-through dollar selling has been limited today after yesterday’s setback. The market lacks near-term conviction. The preliminary March PMIs were mostly weaker, and this is only the initial inkling of the disruptive impact of the war. Yesterday’s hopeful optimism has yielded to a more wary stance today.

Prices

G10

• In yesterday’s volatile session that saw the US back away from the ultimatum issued over the weekend and cited talks that the Iranian leaders denied took place. The euro traded on both sides of the pre-weekend range, traded above the 20-day moving average since the war on Iran began, and settled at its highest level since March 4. The euro retraced a little more than half of this month’s losses. There has been no follow-through buying today, despite the constructive price action. Amid the consolidative tone, the euro found support near $1.1575. Options for 1.1 bln euros at $1.16 expire today.

• The dollar reached JPY159.65 before President Trump lifted the ultimatum he issued about 36 hours previously and gave Tehran another five days. The greenback was sold to around JPY158.20. After the low was set, the dollar consolidated mostly below JPY158.80. Yesterday’s low is holding today and the greenback returned to almost JPY158.80.

• Sterling edged out the yen yesterday as the strongest G10 currency. It rose by about 0.60%. Its performance was recorded alongside a sharp decline in UK rates. The two-year Gilts yield tumbled 15 bp, nearly completely unwinding the pre-weekend jump. The swaps market is discounting about 60 bp of hikes this year, compared with 84 bp before the weekend. Sterling settled near $1.3480 before the war and nearly reached that yesterday. Today’s session so far, below yesterday’s settlement. It found new bids in Europe around $1.3380.

• Despite the wide intra-day range, the Canadian dollar was little changed at settlement yesterday. In the flurry position adjustment amid the hopeful optimism that the war on Iran might not escalate as feared, the greenback was sold to a five-day low (~CAD1.3670). It recovered to around CAD1.3735 before stalling. It made a marginal new two-month high slightly above CAD1.3760 today. Support now is seen in the CAD1.3725 area and a push higher can test the CAD1.3800 area.

• The Australian dollar was punched to almost $0.6910 yesterday, its lowest level since early February. Hope the war on Iran is not going to escalate saw the Aussie snap back. It, too, settled little changed, above $0.7020. A particularly poor preliminary PMI reading and the broadly firmer US dollar pushed the Aussie back to around $0.6955 today. There are A$700 mln of options at $0.6975 that expire today.

• The Mexican peso recovered alongside risk appetites yesterday. The dollar initially reached almost MXN18.09 as the North American session was about to begin. President Trump’s social media reversed the greenback’s gains and sent it to almost MXN17.69. It traded briefly below the pre-weekend low (~MXN17.71) but it settled within last Friday’s range. The US dollar is firmer today. It is in trading in the upper end of today’s range (MXN17.85-MXN17.8775) as ahead of the start of the North American session.

• The yuan recovered alongside the other major currencies yesterday. The dollar reached a two-week high slightly below CNH6.92 before it was sold to new session lows near CNH6.8775. It is consolidating in yesterday’s range—holding above CNH6.8825 and below CNH6.90. The PBOC set the dollar’s reference rate at CNY6.8943 compared with CNY6.9041 yesterday.

• Hope that even if the war on Iran does not end soon, Indian ships will be allowed passage, may have helped the rupee snap a three-day drop. After gapping higher yesterday, the dollar gapped lower today. It closed both gaps and settled firmly near INR93.8750.

Other Markets

• Equities are mixed. Asia Pacific bourses responded positively to yesterday’s recovery in the US. Most of the large bourses gained more than 1%. Taiwan, Malaysia, and New Zealand were exceptions. After snapping a four-day slide yesterday, Europe’s Stoxx 600 is straddling little changed levels today, while US index futures are softer.

• Asia Pacific yields played a little catch-up and pulled back 4-6 bp after the US yields fell yesterday. Despite the weak preliminary PMI, European benchmark 10-year yields are mostly 1-3 bp firmer. The 10-year US Treasury yield is a couple of basis points higher, slightly above 4.36%.

• Gold recovered after testing its 200-day moving average yesterday, slightly below $4100. The yellow metal is trading firmly in Europe and is in the upper end of today’s range, which extends to around $4448. Silver is faring a little better and is probing yesterday’s high (~$70.75) after having been sold to almost $61 yesterday, a new low for the year.

• May WTI is trading relatively quietly but firmly today. It is in the middle of the roughly $88.50-$92.30 range in Europe. June Brent reached $81.65 yesterday, settled near $85.35 and is trading above $87 in late European morning turnover.

Data

• US high-frequency data is of little more than passing interest today. The March Philadelphia Fed’s non-manufacturing survey and the Richmon Fed survey have been superseded by events, as has the preliminary March PMI. Unit labor costs and productivity are not observed directly, and the downward sharp downward revision in Q4 GDP (0.7% annualized from 1.4%) warns that productivity will be slashed from 2.8% and unit labor cost rose more than the 2.8% initially estimated.

• Mexico’s January IGAE economic activity, which is similar to a monthly GDP estimate may have contracted for the second time in three months, though yesterday’s January retail sales jumped 1% (vs. 0.2% gain projected by the median in Bloomberg’s survey). Also, it will report the first half of March CPI. Both the headline and core rates finished February above the top of the target range (2%-4%). The central bank meets later this week, and as of last week, slightly more than half of the two dozen economists polled by Bloomberg anticipate a cut. We are less sanguine and agree with the swap market that is discounting. steady policy.

• The eurozone’s preliminary March PMI was mixed. After rising above the 50 boom/bust level for the first time in a few years, the manufacturing PMI rose to 51.4. Services disappointed. The PMI fell back to 50.1 (from 51.9) and were the weakest since last May. The composite eased to 505 (from 51.9), unwinding the improvement since the middle of last year.

• The UK’s preliminary March PMI softened. The composite PMI fell to 51.0 (from 53.7). Manufacturing and services PMI fell, as well. February CPI is due first thing tomorrow. Given the base effect, the 0.4% monthly increase would keep the year-over-year rate steady at 3.0%. The core is also seen steady at 3.1%. The data has little significance given the disruption of the war.

• Australia’s preliminary March PMI fell hard. The composite fell for the second consecutive month. At 47.0 (from 52.4) it is the lowest in a couple of years. The manufacturing PMI held slightly above the 50 boom/bust level, but the services PMI did not. Australia also reported February CPI figures tomorrow. It is expected to be steady at 3.8% before the war began.

• Japan’s February CPI eased to 1.3% from 1.5%. The core rate, which excludes fresh food, eased to 1.6% (from 2.0%). This is the rate the Bank of Japan targets at 2.0%. It is below the target rate for the first time since March 2022The measure that excludes energy and fresh food eased to 2.5% from 2.6%. Energy subsidies, before the war, seemed to be a key driver. The preliminary March PMI pulled back. The composite now stands at 52.5 after having reached 53.9 in February, the highest since May 2023.

Disclaimer

Threat of Massive Escalation of the War Drags Financial Markets Lower, While Lifting the Greenback

noreply@blogger.com (Marc Chandler) — Mon, 23 Mar 2026 06:47:00 -0400

After seemingly teasing the market ahead of the weekend that he was considering “winding down” military operations, President Trump issued Iran an ultimatum that threatens to escalate the conflict. He issued a 48-hour ultimatum that appears to expire around 7:45 pm ET today that if the Strait of Hormuz is not open, Iranian power plants will be attacked. Iran has reportedly carried out fresh strikes across the region today.

Equities and bonds have been pummeled. The dollar is racing higher. Gold (and silver) are offering no respite. The possibility that we are on the verge of a significant escalation of the conflict will deter investors today. There is no appetite for risk. As we noted when the war began, if this is World War Three, the market wants dollars.

Prices

G10

• The euro chopped lower ahead of the weekend. It had pushed above $1.16 after last Thursday’s ECB meeting. Although it remains within last Thursday’s range (~$1.1445-$1.1615), it has been pushed below $1.15 in Europe and looks poised to test the lower end. Options for around 2.55 bln euro struck at $1.15 expire tomorrow and another stack for around the same amount expires Wednesday. The low since last August was set earlier this month near $1.1410.

• The market has not given up on the JPY160 hurdle, and the disruption from the war and the jump in US rates may give the short-term participants the incentive to overcome it. It is bumping against the JPY159.65 area in the European morning. We suspect there will be some profit-taking after it is broken and look for the JPY160.40 area to cap it.

• A sharp rise in rates after the Bank of England meeting seeming to help lift sterling last Thursday to about $1.3465. It settled above the 20-day moving average for the first time since mid-February. Yet the continued rise in rates ahead of the weekend did not aid sterling, which was pushed back to $1.3300. It has been sold to about $1.3260 so far today. After being turned down from the upper end of this month’s range last week, sterling can now test the lower end, which is found around $1.3220.

• The Canadian dollar slipped ever so slightly last week, making it the worst performer in the G10, the only one not to have risen. The greenback is probing the CAD1.3750 area, the upper end of where it has been since late January. Initial potential may extend toward CAD1.3800-25.

• The Australian dollar spent most of last week between $0.7000 and $0.7100. It frayed both ends by around a fifth of a cent. It settled poorly and follow-through selling today sent it to new lows for the month today, near $0.6910. Last month’s low was near $0.6900. A convincing break could spur another cent loss.

• The pre-weekend risk-off mood helped lift the dollar to the upper end this month’s range against the Mexican peso. The high for the week was seen ahead of the weekend near MXN17.9960. The risk-off environment lifted the greenback to a new high for the month, almost MXN18.0870 today. The next chart area of note is MXN18.10-MXN18.15.

• The dollar settled at a new high for the week against the offshore yuan ahead of the weekend, above CNH6.9050. It rose to a new two-week high today, near CNH6.9185. The upper end of this month’s range is in the CNH6.9350-CNH6.9450 area. The PBOC set the dollar’s reference rate today at CNY6.9041 after it was fixed at a new multi-year low ahead of the weekend (CNY6.8898).

• India seems particularly exposed to the war’s disruption and was vulnerable before the war began. The dollar approached INR93.98 today, a new record. It jumped by about 1.15% before the weekend and another 0.30% today. It was slightly below INR90.98 before the war began. Foreign liquidation of Indian equities reached a record at the end of last week, while selling of Indian bonds also continued. The INR95 is the next key psychological level.

Other Markets

• Stocks are getting smashed. Most of the large bourses in the Asia Pacific region were off 2.45% to 6.5%. Australia, New Zealand, and Malaysia fared best, losing 0.55%-0.75%. Europe’s Stoxx 600 is off 2%, as it slides for the fourth consecutive session. The S&P and Nasdaq lost 1.5% and 2%, respectively ahead of the weekend and are off around 0.8%-0.9% today.

• Bonds are being crushed. The 10-year JGB yield rose a little more than three basis points to almost 2.3%. European yields are jumping too. The 10-year UK Gilt yield is up nearly 11 bp and Italy’s 10-year BTP yield is up a little more than 12 bp. The German Bund is holding in best, with about a three basis point increase. 10-year US Treasury yield is slightly more than five basis points higher to push above 4.43%. Note that this week, the US Treasury plans to sell around $211 bln of coupons, including a two-year floating rate note and more than $250 mln of bills.

• Gold has stabilized after dropping nearly $400 an ounce earlier today and slipped below $4100. It approached the 200-day moving average (~$4091), which has not traded below since November 2023. For its part, silver, which ended last week slightly below $68, fell to nearly $61 today before recovering back to around $64.

• May WTI opened near $100.50 after closing last week, near $98.25. It rose to about $101.65 but is now a little below $100 in nervous trade. June Brent settled near $106.40 before the weekend and reached almost $110 today. Last week’s high was slightly above $112.

Data

• The Chicago Fed’s National Activity Index hardly draws attention in the best of times and today’s February report has been superseded by events. January construction spending is seen rising slightly after the 0.3% increase in December. The Atlanta Fed’s GDP tracker sees the economy expanding 2.7% this quarter after the disappointing revision of Q4 25 growth to 0.7% from 1.4% initially. The weaker growth points to a downward revision in Q4 productivity (from 2.8%) and higher unit labor costs (also from 2.8%), which will be announced tomorrow.

• Mexico reports January retail sales data today, but the focus is elsewhere. First, the central bank meeting on Thursday is the highlight of the week. The market has given up hopes of a cut later this year and now favors a hike. Second, Mexican and US officials meet to begin discussing reforms to the USMCA.

• Japan will report February CPI tomorrow, before the preliminary release of March PMI. The headline and core measures are seen slipping. The headline rate may dip to 1.4% from 1.5%, with the core measure, which excludes fresh food, falling to 1.7% from 2.0%. This would be the first time since March 2022 that the core is below the 2% target.

Disclaimer

Week Ahead: The War and Anticipated Policy Responses Drive the Capital Markets

noreply@blogger.com (Marc Chandler) — Sat, 21 Mar 2026 07:15:00 -0400

There are two main drivers in the foreign exchange market: war and the anticipated monetary policy response. May WTI peaked on March 9 near $113.40. Last week, the average close was a little below $95. Brent has been hit harder but it also peaked on March 9 (~$119.50), The five-day average close is about $105.50. As seems to be widely recognized now, the disruption transcends energy and includes important feedstock for fertilizer, and sulfur, helium and aluminum. Helium may be an under-appreciated component in making semiconductor chips. Of course, the longer the disruption, the more impactful, but already Qatar has indicated that it will take several years to rebuild the damage to its LNG facility.

There has been a dramatic swing in central bank expectations, and it seems somewhat exaggerated. The Fed funds futures are now pricing in a 40% chance of a hike before the end of the year. Until the conclusion of the FOMC meeting in the middle of last week, the cut was still discounted. The swaps market is discounted slightly more than three ECB hikes this year with an 80% chance of the first one next month. Before the war began the market was pricing in a 55% chance of a cut. The swaps market has almost a 88 bp of tightening discounted by the Bank of England this year, a nearly 80% chance of a move next month. Before the war began, the market was discounting two cuts fully and a little more.

Drivers: The risk-off associated with the war has helped support the dollar. The rolling 30-day correlation between the VIX (volatility in the S&P 500) and the Dollar Index has risen to around 0.30 from inversion from mid-January until the end of February. We remain cautious because interest rate differentials have most against the US against Europe. Before the war began, the futures market was discounting two quarter-point rate cuts fully and a 40% chance of a third. At the end of last week, the market began debating about the possibility of a hike. Still, expectations for the European Central Bank and Bank of England have swung even more aggressively in favor of hikes this year.

Data: It is possible that the March survey data will begin picking up the impact of the war. In addition to a few Fed surveys, the preliminary March PMI will be reported. Recall that the composite PMI fell in February for the third month in the past four and at 51.9, was the lowest since last April. The sharp downward revision in Q4 25 GDP (0.7% from 1.4%) means that the 2.8% non-farm productivity will be revised down and unit labor costs higher (from 2.8%).

Prices: The wide swings in the Dollar Index arguably reflect a market that lacks near-term conviction. In what seemed to be an exaggerated response to the European Central Bank and Bank of England meetings, the Dollar Index tested the 99.00 area on Thursday after pushing to around 101.30 during Fed Chair Powell's press conference the previous day. The daily momentum indicators are poised to turn lower. The 99.00 area corresponds to about the halfway mark of the rally since the war began. The next retracement is near 98.70, though the 98.40-50 may offer better initial support.

EMU

Drivers: The threat of another energy shock in Europe has pushed the euro to the lower end of trading range that has prevailed since the middle of last year (~$1.1400). The rolling 30-session correlation of changes in the euro and Brent is inverse by around -0.30. From late November through the end of February the correlation was positive. It was inverse last year, with a brief exception in late May and early June-- until late in the year. The euro seems more sensitive to changes in the US two-year yield (-0.45 on a rolling 30-day correlation) than the two-year differential with Germany (~0.24). Disturbingly, the changes in the euro are also inversely correlated with changes in the German two-year yield. It is now around -0.22, through before the ECB meeting on March 19 it was -0.55, the most inverse June 2024. It was slightly positively correlated in the month before the war began. The swaps market has nearly three hikes discounted for this year, which seem excessive.

Data: The eurozone preliminary March PMI will be reported on Tuesday. Its composite PMI was the same as the US in February 51.9, but the context is different. It snapped a two-month decline to stand at a three-month high. February money supply and lending figures do not capture the market's imagination as they have previously. The ECB's February CPI survey may be too dated to capture impact of the war.

Prices: The euro held above $1.14 at the start of the week but made a new marginal low since last August. It recovered to around $1.1615 in what seemed like an exaggerated response to the ECB, which left rates steady, though the hawks immediately tried outflanking President Lagarde with threats of hike as early as next month. The daily momentum indicators are set to turn higher, and a push above $1.1620 could see $1.1670-80 next. Before the war began, the euro settled a little above $1.1810.

PRC

Drivers: Chinese officials still exert strong control over the exchange rate. We note that the rolling 30-day correlation of change is the Dollar Index and the dollar against the offshore yuan is near 0.75, the highest since last August. We had thought there was a reasonable chance that PBOC would fix the dollar higher this week, but the weekly decline continued and a new three-year low was set before the weekend (CNY6.8898). It has risen in only one week since end of last September. Since the war began, the onshore yuan is the fourth best performing emerging market currency. Year-to-date, it is the sixth best, with only the Malaysian ringgit outperforming it in Asia, while the others are high-yielding Latam currencies.

Data: Given how closely official manage the exchange rate, Chinese data tends not to have much market impact. Still, February industrial profits (reported on a year-to-date, year-over-year basis) are seen a bit as a barometer of efforts to curb "involution" or excess investment and have been positive since around the middle of last year. Beijing also updates its Q4 current account surplus. It was initially reported at about $242 bln, which some critics say is underestimated. Private sector estimates (in Bloomberg's survey) say it was around 3.8% of GDP in 2025, which matches the IMF's estimate. Both, the median forecast in Bloomberg's survey and the IMF project a narrower surplus this year.

Prices: The dollar is consolidating relatively quietly against the offshore yuan. It recorded an inside week and traded between roughly CNH6.8720 and CNH6.9085. It finished last week near the highs. Even though the dollar's reference rate was lowered, the dollar traded broadly sideways against the onshore yuan. Since the end of last November, the dollar has risen against the onshore in one week, the first week of the war.

Japan

Drivers: Since the war began, the 30-day correlation of changes in the dollar against the yen and Brent oil has flipped to positive and around 0.30, it is the highest since last November, before stabilizing in recent days, The correction of changes in the exchange rate and 10-year US Treasury yield has risen to almost 0.55, highest since last November. Some have warned that Japanese officials will defend the JPY160 level, but we are less sanguine. Will recognizing its psychological significance, we think the Ministry of Finance is more sophisticated than defending a fixed exchange rate level. The market seems orderly and reflects broad dollar gains since the war began.

Data: Japan reports its February CPI on Tuesday. Tokyo's CPI, released last month, shapes expectations. Tokyo's headline CPI firmed to 1.6% from 1.5%, while the core rate slipped to 1.8% from 2.0%. Excluding fresh food and energy, Tokyo's inflation ticked up to 2.5% from 2.4%. In January, the national headline was at 1.5%, the core was at 2.0% (the target), and excluding fresh food and energy was at 2.6%. Japan's preliminary March PMI also is due Tuesday. It tends not to be a market-mover, but in February, before the war, the composite PMI reached 53.9, the highest since May 2023. It rose for the second consecutive month and the fourth increase in five months.

Prices: The dollar stalled near JPY159.90 on the rally during the Federal Reserve's press conference in the middle of the week. The broad greenback sell-off the following day, fueled by hawkish reads other central bank meetings, saw JPY157.50. It frayed but held the 20-day moving average on a closing basis. It has been a month since the dollar closed below it. The market has not given up on JPY160 and settled last week near JPY159.30. We suspect a push above JPY160, to maybe JPY160.40 will complete the move. The momentum indicators are stretched and poised to turn lower.

Drivers: Among the G10 countries, the UK has seen the largest swing this year's rate expectations. Before the war began, the swaps market was discounted a little more than two quarter-point rate cuts this year. Now, a little more than three hikes are priced, which seems extreme. Changes in sterling remain highly correlated with changes in the euro (~0.90), the highest since the middle of last year. Yet, since the war, sterling has fallen by about 0.60% against the US dollar, about a third of the decline the euro has experienced.

Data: The UK sees the flash PMI, February CPI and retail sales in the coming days. The composite PMI was flat in February at 53.7, its highest level since August 2024. January CPI fell 0.5% and the year-over-year pace slowed to 3.0% (from 3.4% in December 2025). It was the lowest since March 2025. Before the war's disruption, many expected the BOE to reduce rates last week, even though the core was elevated (3.1%) and service inflation stood at 4.4%. However, inflation in services was moving in the right direction and matched its lowest since March 2022. UK shoppers were exuberant in January. Retail sales rose a heady 1.8% (2% excluding gasoline). The British Retail Consortium warns of not to expect another robust number, and non-food sales may have contracted.

Prices: Sterling reached a seven-session high after the BOE meeting on March 19, slightly above $1.3465. There was no follow-through buying ahead of the weekend and it retreated to $1.3300. The choppy and broad consolidation continues. The daily momentum indicators are poised to turn higher, and the Slow Stochastics did not confirm the recent low. To prove itself on the upside, sterling must push above the month's high set March 10 (~$1.3485). It settled near there on the eve of the war.

Canada

Drivers: It may seem counter-intuitive, but for the first time since early last November, the rolling 30-day correlation between changes in the greenback against the Canadian dollar and WTI turned slightly positive. In mid-February, a couple of weeks before the war began, the correlation was inverse (~-0.45) the most since August 2023. Changes in the Dollar Index and the US dollar's exchange rate against the Canadian dollar is around 0.70 correlated over the past 30-sessiosn. It began the year around 0.50. The 30-day correlation between the exchange rate and two-year US rates is around 0.25, the highest since last October.

Data: Canada has a light economic calendar in the week ahead. The only report of note is the January Survey of Employment, Payrolls and Hours (SEPH), which is Canada's establishment survey as opposed to the timelier household survey. The data, like similar surveys in the US, do not always align. In December, Canada's household survey showed a 10.1k increase in employment, while the SEPH reported a decline of 35.4k jobs. Last year, according to the household survey, jobs increased by about 52k. The SEPH showed that about 28k jobs were lost.

Prices: The greenback traded firmly in the upper end of this month's range against the Canadian dollar. It reached almost CAD1.3750 last week, a smidgeon below the high set earlier in the month. The momentum indicators are still trending higher. The Canadian dollar was the only G10 currency not to have risen against the greenback last week. A break of the CAD1.3650-65 area which houses the 20-day moving average, a retracement target, and last week's low, may be a preliminary sign that a top has been forged.

Australia

Drivers: As one might intuitively expect, there was a positive correlation between changes in Australia's three-year yield and the exchange rate. It reached about 0.35 in January and early February, the highest since January 2025. However, it has flipped this month and is now around -0.10. It has slipped to almost -0.25, the most inverse since last October. Previously we have noted the strong correlation between gold and the Aussie. It was around 0.80 in the first part of February, the highest since January 2024. It has broken down, and below 0.35, it is at the lowest for the year.

Data: Australia sees the preliminary March PMI on Tuesday. Recall that the February composite pulled back to 52.4 from 55.7 in January, the highest since April 2022. The central bank projects 2.1% growth this year, a smidgeon better than the 2.0% recorded in 2025. On Wednesday, February CPI will be reported. The base effect warns of the risk that the headline pace accelerates form the 3.8% year-over-year pace seen in December 2025 and January 2026. Before the war, the Reserve Bank of Australia projected a 3.6% rate this year.

Prices: The Australian dollar is trading sideways even if choppily. The five- and 20-day moving averages have converged slightly below $0.7075. The daily momentum indicators slipped lower in recent days, but they poised to turn. The Aussie fell to two weeks of the war but gained 1.3% last week. It settled near $0.7120 on the eve of the US-Israel strikes on Iran.

Mexico

Drivers: The greenback's movement against the Mexican peso enjoys around a 0.57 correlation with changes in the Dollar Index over past 30 session, the most since last October. However, the exchange rate seems even more sensitive to changes in the volatility of the S&P 500. The 30-day correlation is near a little above 0.70. It approached 0.80 earlier in the week, the most since last May. This underscores the sensitivity of the exchange rate to the short-term risk environment.

Data: Mexico reports January retail sales and February trade and unemployment figures in the coming days. On Tuesday ahead of the central bank meeting on Thursday, the first half of March CPI is due. At the end of February, both the headline and core rates were above the upper end of the 2-4% target range. There is little doubt that the central bank is on hold. The swaps market has, however, given up on the possibility of another cut in the cycle, and is now discounting a hike in Q3.

Prices: The dollar continues to chop around a new and higher range against the peso. The broad range seems to be about MXN17.50-MXN18. However, last week, the greenback snapped a three-week advance and settled slightly lower. It finished the week near MXN17.900. It was a little below MXN17.23 before the war began. The momentum indicators are stretched but have yet to turn lower. The continuation of the war in to the fourth week and sell-off in stocks and bonds warns of the risk of additional dollar gains. A convincing more above MXN18.00 could signal toward MXN18.15-MXN18.20.

Disclaimer

USD Comes Back Bid after Yesterday's Exaggerated Slide

noreply@blogger.com (Marc Chandler) — Fri, 20 Mar 2026 06:49:00 -0400

The market seemed to overreact to the central bank meetings this week. The market heard Fed Chair Powell as more hawkish than the FOMC statement and took the dollar sharply higher. Yesterday, it overreacted to the Bank of England and European Central Banks and sold the greenback aggressively. The swaps market is discounting three rate hikes this year by the ECB and BOE, and about three basis points of tightening by the Federal Reserve.

Still, after yesterday’s sell-off the dollar has bounced back. The fog of war seems to contribute to the desire for short-term market participants not wanting to be short dollars into the weekend. Even though the US and Israel say that they will not strike Iranian oil infrastructure, there is little sign of de-escalation and yesterday, US Treasury Secretary Bessent made a reference to the possibility that Kharg Island could be taken over by the US. Adding to the mix is today’s “triple-witching” that see a relatively large, $5.7 trillion of options on individual stocks, indices and exchange-traded funds expire. This comes amid a further sell-off in stocks and bonds.

Prices

G10

• After practically no follow-through euro selling yesterday and the sharp drop during Fed Chair Powell’s press conference on Wednesday, the euro rallied strongly yesterday. It reached a six-session high, almost $1.1615. ECB President Lagarde seemed to take a wait-and-see stance and expressed no sense of urgency, but unnamed hawks played up the risk of a hike as early as next month, and today the Bundesbank’s chief made the same point. And it is not just one hike but now the swaps are pricing in nearly three hikes before the end of the year. However, with the weekend at hand, given the fog of war, the short-term market does not want to be short dollars. The euro has held below $1.16 today and was sold $1.1535 area ahead of the North American session. This risks a test on $1.15, where options for 1.5 bln euros expire today.

• The yen rose to a seven-session high yesterday as the greenback unwound the Powell-inspired gains. The dollar rose to within a whisker of JPY160 on Wednesday and early Thursday before being sold to JPY157.50 in the North American afternoon. The 20-day moving average, which the dollar has not traded below since February 24 (~JPY157.75 today) was frayed. However, market seemed to overreact yesterday, and with Tokyo markets closed for the national holiday, the greenback recovered to around JPY158.90 today. There are $920 mln options at JPY158.50 that expire today.

• Sterling also recovered smartly yesterday. After it slipped below $1.3250 in the early going, it poked above $1.3465, its best level since March 10. It took out the 20-day moving average (~$1.3405) for the first time since the middle of last month. on a set a five-session high that frayed the 20-day moving average (~$1.3400 today). There was no follow-through sterling buying today and it mostly held below $1.3440 so far today. Nearby support is around $1.3345-55. The swaps market swung from practically flat Wednesday to pricing in an 80% chance of a hike by the Bank of England next month. Before the war the market had a cut in April fully discounted. Three hikes before the end of the year are fully discounted.

• The Canadian dollar was the weakest currency in the G10 yesterday. It was practically flat. It was the first session since late January that the US dollar did not trade below CAD1.3700. It is holding above CAD1.37 so far today in quiet turnover. While the greenback made a marginal new two-and-a-half-week high yesterday, it stalled near CAD1.3750, while the month’s high was a little above it. It is not clear that the consolidation pattern has ended. There are nearly $1 bln roughly divided between three strikes, CAD1.3725, CAD1.3740, and CAD1.3750 expiring today.

• The Australian dollar held $0.7000 and recovered to almost nearly $0.7110 in the North American afternoon yesterday. Tuesday and Wednesday’s highs were around $0.7120-25. It is trading a bit heavier today, and has been sold to session lows, slightly below $0.7055 in Europe. Nearby support is seen in the $0.7020-40 area.

• Despite the risk-off mood, the Mexican peso recovered from a four-day low to settled higher on the day. The US dollar reached almost MXN17.96 before being sold slightly below MXN17.68. It has mostly traded between MXN17.50 and MXN18.00 this month and settled a little north of the mid-point. The greenback is trading with a firmer bias and is approached MXN17.83 in Europe. The Brazilian real gained slightly more than the Mexican peso yesterday (~0.85 vs. ~0.65). The two led Latam currencies higher yesterday.

• The dollar turned lower after reaching a three-day high against the offshore yuan, near CNH6.9076 yesterday. As the greenback was sold more broadly it fell to new session lows around CNH6.8870 in the North American afternoon. It is trading inside yesterday’s range. It settled last week near CNH6.9065. We had thought the dollar fix might be raised this week, but instead, the PBOC set the dollar’s reference rate at a new multi-year low today (CNY6.8898 vs. CNY6.8975 yesterday, and CNY6.9007 at the end of last week.

• Indian markets re-opened after yesterday’s holiday and the rupee was sold aggressively. The rupee fell by as much as 1.2% today, the most since February 2022. Foreign selling of assets took a toll and lifted the dollar to a record INR93.76. The INR95 area may be tested next week.

Other Markets

• Asia Pacific equities were mostly lower, and Tokyo markets were on holiday. South Korea’s Kospi bucked the trend and posted a small gain as has the Indian indices. The Stoxx 600 in Europe is little changed after it fell 2.4% yesterday. US index futures point to a lower opening. The S&P 500 settled below its 200-day moving average yesterday for the first time since May 2025.

• Bonds also are under pressure. Benchmark 10-year yield are 4-7 bp higher in Europe, led by the UK Gilts and Italian BTPs. The 10-year US Treasury yield is up five basis points to 4.30%. The high yield was around 4.32% yesterday, the highest since last August.

• Gold is little changed as it consolidates after the ~$365 loss over the past two sessions. Silver is trading heavier and it could be the fourth consecutive session of losses of more than $1 an ounce.

• May WTI has been confined to the lower end of yesterday’s range, but is near session highs, above $96, ahead of the start of the North American session. Yesterday’s push above $100 briefly marks the week’s high. The May-July Brent futures contracts remain above $100.

Data

• Canada reports January retail sales today. Based on preliminary data, StatsCan tipped a sharp 1.5% gain after a 0.4% decline in December. Excluding auto sales, a 1.2% jump is projected by the median forecast in Bloomberg’s survey after a 0.1 rise at the end of last year.

• The UK reported February government finances today and they were worser than expected. Still, the surge in interest rates renders the data moot. The UK 10-year Gilt yield is up 70 bp since the war began and the two-year Gilt yield has risen by about 100 bp.

• The eurozone reported January’s trade and current account surpluses of 12.1 bln and 37.9 bln euros, respectively. It is driven by Germany, of course. It is notable that the IMF estimates that Germany’s current account surplus was 5.8% of GDP in 2024 and 4.5% last year. It is projected to rise to 5.1% this year. The IMF estimates that China’s current account surplus was 2.3% of GDP in 2024 and 3.8% in 2025. It forecasts a 2.8% surplus this year. There are critics who say that China’s surplus is larger than the IMF says but while many IMF projections are debated by private sector economists, they offer a consistent baseline view.

• As widely anticipated, Chinese banks left their one- and five-year loan prime rates steady at 3.0% and 3.5%, respectively. They were last changed in May 2025, when they were lowered by 10 bp.

Disclaimer