U.S. Dollar Looking to be Tested with Heavy Data Week. ECB Meets Thursday

USD

The U.S. Dollar is trading in familiar ranges after a weekend without any major developments other than the ongoing Presidential campaign drama in France. Markets are stalled right now with equity markets quiet in the Europe and Asia sessions while metals and raw materials fell in price as a result of uncertainty over China. Premier Li Keqiang had a somewhat dovish work report prepared ahead of an annual meeting with congress in which he points at large challenges ahead. Exporters in emerging markets hope that’s not the case.

Factory Orders will be out later today, but a slew of data later this week will help us measure the overall health of the economy and if the Fed will have no reason to hesitate in hiking mid-month. Current ranges may be difficult to break even if economic indicators impress since chances of a hike are being priced-in at 95.0%.

 

EUR

The Euro fell slightly, primarily a result of the fear associated with the French election chaos. Marine Le Pen is seen as a potential catastrophe for the prospects of maintaining a Euro-bloc, if not the European Union. However, the opposition to her populist message is weakening as candidates involved have already been compromised in corruption probes and other controversies, further opening room for Le Pen to gain support.

The European Central Bank is set to meet on Thursday and most economists are expecting a dovish tone, particularly because of questions about Greece’s debt-relief sustainability and the need to reconsider QE. We believe even a positive Draghi could not propel the shared currency since political instability is driving the fluctuation more significantly.

 

JPY

The Yen has depreciated by 1.7% thus far in March, losing ground as a result of higher betting in Japanese markets over the currency pair. Insurers and other bond holders in Japan are asking the BOJ to allow for more borrowing as yields elsewhere are going up and economic growth is pushing inflation globally. Higher prices require more funds and the fact that BOJ has been trying to contract the supply a bit is affecting re-balancing by banks and other institutions. Tighter controls on the yield curve and capping borrowing costs by the BOJ may be likely to face stronger opposition.