US Dollar may go down heading into FOMC minutes
(by Arnaud Masset)
Most currency pairs have been trading sideways so far this week as investors remained reluctant to choose sides between Dollar bears or bulls.
Obviously against this backdrop of uncertainties, the Japanese Yen took the best of the situation and extended gains as it returned below the 111 threshold. Investors will however slowly get out of the rut as a few pieces of key economic data are due for release before Friday, as well as the minutes of the March FOMC meeting.
The ADP job report is due for release at GMT 12:15 today. The market is expecting a much lower reading compared to February, when the pace of hiring exploded and printed at 298k versus 187k median forecast.
For March, the market is expecting a reading closer to 185k. On our side, we believe that there is a substantial chance that February’s reading will be revised downwards.
Over the last few months, the Federal Reserve has been slowly shifting its communication, putting less emphasis on the headline unemployment rate and the pace of job creation, but rather stressing developments in the underemployment rate and core inflation.
Today’s job report, just as Friday’s NFPs, will therefore have little impact on the course of the USD. On the other hand, March’s FOMC minutes that are due for release at GMT 18:00 could matter. Especially in the event of a dovish surprise which would eventually weigh on the greenback. The risk is definitely a downwards shift for the USD as we head into the minutes.
Oil-linked FX gets a boost
(by Peter Rosenstreich)
Oil prices rallied to a one-month high as expectations increased ahead of today’s EIA inventories reports.
There are clear signs that U.S inventories have fallen from record high levels. WTI crude today has reached $51.50 in early European trading on tightening supplies speculation.
Improving US consumer health has seen a deeper draw on gasoline stockpiles. Gasoline supplies fell 3.7 million barrels while distillates stockpiles dropped 2.5 million barrels last week.
In addition, potential supply disruptions in Libya and an unscheduled production outage in the North Sea provide further support for higher crude prices.
Crude bullish sentiment has given oil-linked FX a boost. Global storage inventories have been a overhang to higher prices. As glut is substantially reduced, crude prices can move higher. Mexican Peso (MXN) and Ruble (RUB) have led the gainers on the Emerging Markets side.
Oil and gas stocks were the second best sector in equities. We are constructive on the complete crude trade since global economic conditions (improvement in trade and manufacturing) are driving additional crude demand.
OPEC capped production limits by 1.2 million barrels and any extension (unlikely to end in May) might have seemed trivial at the time. However, with global fundamentals strengthening and heading to the summer driving season every barrel counts.
French Elections: Mélenchon risk to single currency is underestimated
(by Yann Quelenn)
The second debate of the French Presidential Election was broadcast yesterday, during which the 11 candidates had the chance to expose their views on many different topics. Emmanuel Macron was widely expected to win and he was hardly attacked by the other candidates. No candidate performed badly and so it was very hard to find a winner.
In the markets, we can see the CAC 40 is improving more slowly than the Euro Stoxx 50. We try to measure investors’ fear and we believe banks’ stocks price are a good proxy for that. It is clear that their volatility is increasing.
Currency-wise, we do not see the single currency improving should Macron or Francois Fillon get elected. There is also a growing risk for the single currency as we believe Jean-Luc Mélenchon's chance of winning is underestimated. His performances in the debates are always one of the most accomplished, if not the best. And his “Plan B” is that in the case of negotiation failure, he would not hesitate to ask for a Frexit referendum. So we now assume that Euro downside risks are not anymore only due to Marine Le Pen.