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US Dollar May Edge Higher on Pre-Positioning for FOMC Minutes

US Dollar May Edge Higher on Pre-Positioning for FOMC Minutes

Talking Points:

The Japanese Yen outperformed in overnight trade, rising against a backdrop of weakness across Asian stock exchanges. The Australian Dollar traded modestly higher after the RBA kept its benchmark lending rate unchanged at 2 percent and signaled it is in no hurry to ease again, as we expected. The near-term pop probably reflects the underlying dovish lean in 12-month policy bets that still price in at least one 25bps rate cut by early 2017. The RBA’s decision to remain in wait-and-see mode effectively makes such a move more distant. The New Zealand Dollar fell after NZIER reported a sharp drop in business confidence in the first quarter and projected an RBNZ rate cut by June.

Looking ahead, amuted economic calendar may see investors take the day to pre-position for Wednesday’s publication of minutes from the March FOMC meeting. Investors’ 2016 rate hike outlook has shifted in the dovishdirection over the past two weeks. The release represents event risk with potential to counter this dynamic. As such, traders may opt to scale back on thematically vulnerable exposure. This may bode well for the US Dollar but hurt risk appetite, sending sentiment-linked commodity bloc currencies lower alongside stock prices.

Comments from Chicago Fed President Charles Evans – a dove that has nevertheless backed the latest forecast calling for two rate hikes in 2016 – take top billing on the speaking schedule. Rhetoric suggesting that external headwinds recently cited by officials are being watched but have yet to actually undermine progress toward policy objectives would hint at a coordinated strategy to pave the way for a June rate hike, as we have suspected.

The US ISM Non-manufacturing Composite gauge is also on tap. Expectations suggest the pace of service-sector activity growth narrowly slowed last month. US economic news-flow has increasingly improved relative to consensus forecasts since February, opening the door for an upside surprise. Such a result may amplify upward pressure on the greenback, although significant follow-through may be lacking as traders opt to withhold true directional conviction until after the FOMC Minutes outcome.

UK Services and Composite PMI figures are in focus on the European data docket. An uptick is expected on both fronts. As with the US, realized UK data outcomes have firmed relative to consensus forecasts over the past two months. If this proves to foreshadow better-than-expected outcomes, the British Pound may continue to recover having slumped late last week. That move may have reflected flows linked to portfolio adjustment for “Brexit” referendum risk at the start of the new fiscal year and the new quarter.

Losing money trading in the FX market? This might be why.

Asia Session

23:30AUDAiG Perf of Services Index (MAR)49.5-51.8
23:30AUDWeekly Consumer Confidence Index 113.4-114.5
00:00JPYLabor Cash Earnings (YoY) (FEB)0.9%0.2%0.4%
00:00JPYReal Cash Earnings (YoY) (FEB)0.4%-0.4%
01:00NZDANZ Commodity Price (MAR)-1.3%-0.4%
01:30AUDTrade Balance (FEB)-3410m-2500m-2937m
02:00JPYNikkei PMI Services (MAR)50.0-51.2
02:00JPYNikkei PMI Composite (MAR)49.9-51.0
04:30AUDRBA Cash Rate Target 424652.00%2.00%2.00%

European Session

06:00EURGerman Factory Orders (MoM) (FEB)0.3%-0.1%Low
06:00EURGerman Factory Orders WDA (YoY) (FEB)2.2%1.1%Low
07:45EURMarkit/ADACI Italy Services PMI (MAR)53.953.8Low
07:45EURMarkit/ADACI Italy Composite PMI (MAR)-53.7Low
07:50EURMarkit France Services PMI (MAR F)51.251.2Low
07:50EURMarkit France Composite PMI (MAR F)51.151.1Low
07:55EURMarkit Germany Services PMI (MAR F)55.555.5Medium
07:55EURMarkit/BME Germany Composite PMI (MAR F)54.154.1Medium
08:00EURIstat Releases the Monthly Economic Note--Low
08:00EURMarkit Eurozone Services PMI (MAR F)54.054.0Medium
08:00EURMarkit Eurozone Composite PMI (MAR F)53.753.7Medium
08:30GBPOfficial Reserves Changes ($) (MAR)-1362mLow
08:30GBPMarkit/CIPS UK Services PMI (MAR)53.552.7High
08:30GBPMarkit/CIPS UK Composite PMI (MAR)53.452.8High
08:30GBPBOE's FPC March Meeting Minutes--Low
09:00EURRetail Sales (MoM) (FEB)0.0%0.4%Medium
09:00EURRetail Sales (YoY) (FEB)1.9%2.0%Medium

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3

--- Written by Ilya Spivak, Currency Strategist for

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