USD: US Dollar rallies against weak JPY

Last week's trading was fairly calm, especially concerning US data. The University of Michigan's consumer confidence index for April fell to a record low of 96.9 points, down by 1.5 points from the previous reading of 98.4. The US dollar remained relatively in narrow ranges for most of the week. And on a related note, we saw a fresh affirmation from the Federal Reserve Chairman, Jerome Powell, regarding the central bank's independence – following President Trump's comments last week that the Fed should cut rates – keeping the dollar relatively cohesive. The stability of oil prices at their recent highs, the lack of change in risk appetite, and the stability of expectations for US interest rates have had a clear effect on the gains we have seen in USD/JPY, which increases the likelihood of retesting the 113.00-113.15 resistance level soon if the pair succeeds in stabilizing above the 112.12 level.

Euro: Weak EU economic data persists

In Europe, the focus last Friday was on Eurozone industrial production data for February. While January's industrial production was stronger than expected, this positive start of the year was unlikely to continue in February. Indeed, on Friday we saw a weaker reading of the Industrial Production Index at -0.2%. However, this reading remains better than the average market expectations of a worse -0.5%. Therefore, we saw some gains in EUR/USD, which closed around the 1.1300 levels. However, the growth of weak industrial production in the euro area remains an additional and logical excuse for the ECB's cautious stance, which leads us to conclude that any prospects for tightening or even the normalization of European monetary policy in the short-term remain very low.

GBP: Lonely in the face of uncertainty

The main concern now for GBP traders is to speculate on how the potential battle for the conservative party’s leadership could go, reinforcing market fears that a more anti-EU prime minister in this regard could emerge than the current Prime Minister Theresa May, who is clearly losing control with repeated failures to win the support of members of parliament on an earlier agreed upon Brexit plan. We should also note the continued decline in GBPUSD short positions according to the COT report of the CFTC, which since the beginning of this year has led to a further reversal. Moreover, the recent agreement to extend Article 50 for six months could prove to be insufficient time as the growing threat of uncertainty could be translated into a price drop in GBP/USD, possibly visiting the 1.2800 levels.

Highlights of the week:

From the USA, next week we will be looking at its trade balance, which is likely to show an expected increase in its current deficit of $51.1 billion recorded in January. In housing, markets expect an improvement in Housing Starts for March as well as for Building Permits after sharp declines in the previous month. Also, retail sales are expected to rise in five months in March after falling unexpectedly in February, while the average forecast is in favor of industrial output growth – its first growth since last November’s reading. The figures for purchasing managers, business and wholesale stocks, capital flows, the Philadelphia Fed Manufacturing Index, the Empire State Industrial Index and the NAHB Housing Market Index will also be noted.

From the UK, which is expected to publish data on inflation, unemployment, wage growth and retail data. Expectations are for a sharp rise in consumer prices (the most in three months), the unemployment rate likely to remain close to its lowest level since 1975, and that retail growth will decline.

From the Eurozone, specifically from Germany and France, Markit's PMI figures will be in the spotlight. The eurozone's manufacturing sector is expected to fall for the third month in a row, while growth in service activity is likely to remain weak. Other key economic data includes the eurozone’s trade balance, its current account, and the output of its construction sector, as well as the survey of investor sentiment and inflation figures from producers.

From Japan, traders are looking forward to seeing the latest release of Japanese CPI figures for March, trade balance figures, the Nikkei PMI, as well as the final reading for Japanese industrial production.

To China, where investors will focus on GDP growth for the first quarter as market expectations indicate that it’ll expand at its weakest pace since 2009 amid a continuing trade war with the United States. The country will also provide updated figures for industrial production, retail sales, house price index and fixed asset investment.

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