Forex week in review: March 24-April 1

The month-end, quarter-end ‘fix mess’ is now over. Welcome to the beginning of the ‘carry’ month. Carry is king in April. Non-farm payrolls did not bring forth ‘that’ surprise. The dollar has suffered whiplash this week on the back of Fed member jousting rhetoric. Minneapolis Fed President Kocherlakota’s comment that a hike of 75bp was possible in 2011 was negated by Friday’s dovish comments from New York’s Fed President Dudley, a close friend of Ben’s.

Ireland passing the stress tests and being downgraded, like Portugal, has done little to stem the EUR’s rise. The stress test result and Portugal’s successful bond auction seem to further limit the prospects for a near-term systemic shock that could derail Trichet’s plan to hike rates next week. The market has priced this in and all we need now is for the ECB to deliver. A new ECB rate hiking cycle will usher in a new phase of general dollar weakness versus the European currencies.


  • EU summit fails to deliver specifics on EFSF enhancement. Made progress in defining a new post-2013 support regime for peripheral borrowers. No decisions made on support for Portugal or interest rate relief for Ireland.
  • Chancellor Merkel’s coalition suffered heavy losses in regional voting and the CDU lost control of Baden-Wuerttemberg for the first time in 50 years. No implications in terms of the government’s ability to pass legislation on European issues.
  • UK GDP was revised a touch higher (-0.5%), but M4 growth was weak (-0.5%).
  • Italian business confidence rose to a new cycle high, echoing the message from French confidence last week. Data continue to fully support an ECB tightening at next week’s meeting.
  • Swiss KOF comes in stronger than expected, rising to 2.24 in March. The print matched the high from July, before CHF strength induced a moderation in the survey.
  • SNB Vice-Chairman Jordan’s commented that monetary conditions are currently appropriate and suggested that the SNB would only hike rates if the franc weakened first.
  • UK CBI rose to 15 in March. The expected April retail sales volume is at +18. UK index of services reversed the weather induced drop in December, rising +1.3%, m/m in January.
  • Euro zone consumer confidence came in line at -10.6 for March. Economic and services sentiment came slightly below consensus expectations, while industrial confidence held at high levels.
  • The BoE credit conditions survey reported a fall in demand for mortgages in Q1 and noted concerns from banks on the impact of an interest rate rise on defaults.
  • The Euro-region area CPI surprised, strong at +2.6%, y/y, in March.
  • German unemployment rate fell to +7.1% in March, the lowest level since 1991.
  • Portugal reported a +8.6% of GDP budget deficit for 2010 (target +7.0%), and revised up the 2009 deficit to 10% from 9.3%. Portuguese spreads have widened.
  • Irish bank ‘pass’ stress tests, coupled with a successful auction of EUR1.6bn in Portugal bonds would seem to further limit the prospects for a near-term systemic shock that could derail Trichet’s plan to hike rates next week.
  • Manufacturing PMI’s retreated in March in all core Euro-zone economies, French (55.4), Italy (56.2) and Germany (60.9). Importantly, the levels of the surveys remain very high and consistent with strong growth, which should keep ECB’s tightening plans in place.
  • UK manufacturing PMI disappointed (57.1). Weakness was driven by a sharp drop in orders from 62 to 54.9, suggesting PMI could remain soft for the months ahead. This supports the dovish camp on the MPC


  • St. Louis Fed’s Bullard says FOMC should consider curtailing QE2. Normalization may start before crises end.
  • The US housing market recession is not over yet. January’s reading for the 20-city S&P/Case-Shiller HPI (-3.1%, y/y) points to further softening in house prices before the housing sector reaches a bottom.
  • US consumer confidence fell shy of expectations this month (63.4 versus 64.9), on the back of less confidence in the ‘future’ whereas confidence in the ‘present’ circumstances picked up.
  • ADP print (+201k) inline with consensus.
  • The last major regional purchasing manager’s index, Chicago PMI, eased slightly to 70.6% in March from 71.2%.The prices paid component climbed to 83.4% from 81.2%, while new orders edged slightly lower to 74.5% from 75.9%. However, the employment index remains supportive 65.6% versus 59.8%.
  • Canadian GDP was a decent print (+0.5). Analysts note that temporary factors that boosted manufacturing distorted the headline. Market can expect the effects to be reversed in the February release.
  • NFP beat market consensus (+216k), raising expectations of a tighter monetary policy due to a stronger economy. Unemployment rate fell to +8.8% and last months release was revised higher by +2k.
  • Marginal slippage in March ISM index to 61.2 vs. 61.4. Pressure coming from new orders, while prices paid continues to rally.
  • Dovish comments from New York Fed Dudley has forced the market from pricing too much tightening.


  • New Zealand reported a February trade surplus of NZD194mn, below the NZD270mn consensus forecast. Exports rose +17%, y/y, import growth of +23%, y/y was boosted by an aircraft purchase.
  • Japan reported strong retail sales (+0.8%) and unemployment data (+4.6%) for February. The data are pre-disaster and have been generally ignored by the market given the uncertainties that lie ahead.
  • PBOC has taken a softer tone on monetary policy in its latest statement. The reference to inflation and assessment of monetary conditions has both turned less aggressive. Market believes they are signaling a ‘pause’ in monetary tightening for 1-2 months.
  • Japan’s Ministry of Finance reported that intervention in March totaled Y693bn, or about $8bn. Most if not all of this was likely conducted on March 18
  • Australia retail sales growth rose +0.5%, m/m, however building approvals were down +7.4%, most likely flood related.
  • China’s headline PMI rose to 53.4 from 52.2 in February. The forward-looking new orders index rose only +0.9pp to 55.2, versus an average +4.9pp in the past five years, and the PMI new export orders index rose +1.6pp to 52.5.
  • Japan’s Tankan Manufacturing Index came in line with expectations and rose 6-points.


  • This week is dominated by Central Bank announcements, starting down-under with the RBA followed by BoJ, BoE and finishing with the ECB.
  • Bernanke gets some air time at the beginning of the week, ahead of the FOMC meeting minutes on Tuesday.
  • Canada gives us Ivey PMI and Building permits and employment changes
  • Australia will also focus on employment and the US its weekly claims

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell