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By Stephen Innes, Chief Global Market Strategist at Axi,
The US dollar seems to have turned a small corner on the Euro with month-end demand and rebalancing in stocks out of the way. Europe’s delays on vaccination and renewed lockdowns are priced by now, and eventually, there should be more positive headlines to support the EURO.
And indeed, the EURO’s relative resilience may reflect headlines that suggested better days ahead for the EU’s stuttering vaccination programme.
The foremost opportunity in G10 FX markets could be positioning for European activity’s likely recovery. Vaccinations look set to accelerate significantly in April and May, and experience suggests current lockdowns will lower Covid-19 case numbers relatively soon. Indeed, this should be positive for the EURO.
US dollar’s limited rally
The US dollar seems more influenced by risk-on risk-off than under the “US exceptionalism” theme. This partially explains why the USD did not rally despite excellent unemployment data last Friday, followed by a sizzling ISM.
And with US rates not following through higher, it suggests the market is reducing long USD positions by not entertaining the US Fed policy normalization “exceptionalism” from the FOMC statement at this stage of the recovery.
Even though the data was stellar, the market knows US Fed Chair Powell has witnessed enough mistakes at the central bank to see that he needs to be patient with policy.
Malaysian Ringgit remains under pressure
The Ringgit remains mired between the competing forces of softer US yields and lower oil prices as energy sectors struggle to shake Monday’s sneaky but ferocious sell-off.
And with US yields basing, the fuel that drove the MYR higher could be evaporating. And when the higher oil prices and lower US yields’ stars don’t align, the Ringgit could struggle to break higher ground.
And as worrisome for commodity exporters like Malaysia is China telling banks to reign in lending, which softens Chinas credit impulse, and not favourably for the MYR as Malaysia has strong export ties with China.
Gold jumps a little
Gold jumps as the US dollar and yields fall. And with USD not responding to “US exceptionalism”, it still leaves room for further price climbs.
Gold prices firmed in volatile Asian and European trading as the Easter holidays ended and full trading got back underway. Gold received support from the FX markets as EURUSD retained Monday’s gains, putting gold on a firm footing. And as we all know, gold in a dollar weaker environment tends to remain tether at the hip to the EURO.
But ultimately, it was the USD’s weakness and an easing in yields during US trading that effectively provided the accelerant to rally in gold and silver.
