TALKING POINTS – YEN, US DOLLAR, PMI, STOCKS, POUND, BREXIT
- Eurozone, US PMI data may stoke global slowdown worries
- US Dollar and Yen may rise amid broad-based risk aversion
- British Pound up as EU grants UK two-week Brexit reprieve
Global growth concerns are likely to take center stage in the final hours of the trading week as traders are treated to a first look at March Eurozone and US PMI data. The surveys are seen as a timely gauge of the global business cycle. If they disappoint – echoing a string of downbeat results relative to forecasts recently – then the already simmering fears of a downshift in the global business cycle may be amplified.
That may be a catalyst for liquidation, weighing on the sentiment-geared Australian and New Zealand Dollars while offering a lift to standby anti-risk alternatives like the Japanese Yen and the US Dollar. Worries about the upcoming round of US-China trade talks might help the risk-off move along. Bellwether stock index futures have conspicuously erased earlier losses however, warning against pre-commitment.
BRITISH POUND UP AS EU GRANTS UK 2-WEEK BREXIT REPRIEVE
The British Pound outperformed in an otherwise quiet overnight session. The currency rose against all its G10 FX counterparts after the EU agreed to grant UK Prime Minister Theresa May a two-week Brexit deadline extension. She now has until April 12 to decide whether to leave without an agreement or seek a much longer-term delay, assuming Parliament continues to reject her withdrawal proposals.
If Mrs May manages to get her scheme through the House of Commons on a third attempt next week after two crushing defeats previously, the UK will have until May 22 to put the particulars in order and withdraw. The two key dates reflect milestones ahead of the upcoming EU parliamentary elections. The UK must decide by April 12 if it will participate, and May 22 is the last day before voting starts.
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CHART OF THE DAY – WILL USD OR JPY BENEFIT MOST FROM RISK AVERSION?
USD and JPY often find support at times of risk aversion. The former benefits as its unrivaled liquidity commands a premium amid a selloff. The latter finds support as investors unwind carry trade exposure financed in the perennial low-yielder.
Near-term studies tracking the correlation between the MSCI World Stock Index – a benchmark for market-wide risk appetite – and the two currencies’ average values against their top peers suggest the Greenback is now more sensitive to this influence than the Japanese unit. So, it may outperform in a risk-off scenario.
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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