FOREX: US Dollar Vulnerable on Risky Asset Gains, Dovish Fed-Speak

Overnight Headlines

• Euro Corrects Lower vs US Dollar After Friday’s Outsized Advance
• China’s Trade Balance Unexpectedly Shows Surplus as US Exports Rise
• Japanese Machine Orders Underperformed Ahead of Tohoku Quake

Critical Levels

The Euro underperformed in quiet overnight trade, down as much as 0.3 percent against the US Dollar as markets digested Friday’s outsized advance. The British Pound was little changed, with prices locked in choppy oscillation below 1.64 to the greenback.

Asia Session: What Happened

China’s Trade Balance posted a narrow surplus in March having produced the first deficit in 11 months in February. Exports growth accelerated, with overseas rising at an annual pace of 35.8 percent, led by a pickup in shipments to the US (where export volumes increased $9.31 billion). Economists were expecting a $3.35 billion deficit ahead of the release.

Japanese Machine Orders grew at an annual pace of 7.6 percent in February, marking an improvement from the previous month but falling short of expectations calling for a 9 percent increase. The figures bear little impact on the outlook going forward considering they account for a period before the Tohoku earthquake that disrupted activity in Japan’s key industries. Indeed, Citigroup announced a downgrade of Japan’s automakers amid quake-related closures just today.

Euro Session: What to Expect

With little of note on the economic calendar, sentiment trends will be in focus in European trade. Stock index futures are ticking higher ahead of the opening bell, pointing to a “risk-on” dynamic favoring losses for the safety-linked US Dollar against most of its major counterparts (with the notable exception of the Japanese Yen, with USDJPY likely to rise if risky assets advance). The Euro and the commodity bloc (Australian, Canadian, and New Zealand Dollars) are expected to outperform given such a scenario, according to near-term correlation studies.

The docket of scheduled speeches may prove of note, with Federal Reserve of New York President Bill Dudley and Vice-Chair Janet Yellen due to take to the wires. Both policymakers are notable doves, and their remarks may prove to weigh on US yields – and by extension, the greenback – after the return on the 2-year Treasury finished Friday at the highest in eight weeks amid building expectations that the Fed was getting ready to unwind stimulus measures.

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