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Upbeat Fed but Geopolitics Dominate

11 April 2017USAEconomicsEurope

The Fed remained relatively upbeat despite the disappointing March jobs data but currency markets are likely to remain focused on geopolitics in the near term.


Strategy: USD dips likely to be shallow and seen as medium term buying opportunity

USD: The short-lived dip in the USD last Friday on the back of disappointing US jobs data suggest that investors may have seen the lows in the USD.The Fed's relatively upbeat comments on its intention to reduce the Fed balance sheet and strength of the US jobs market points to the prospect for at least 2 more rate hikes this year. Demand for USD among institutional investors including hedge funds have also been rising over the past month. This suggests that any geopolitical-related dips in USD are likely to be shallow, especially against the JPY, EUR & AUD.


Uncertainty surrounding the French Presidential election is increasing as the latest polls now point to the rise of Far-Left candidate Melenchon. Citi analysts now expect Macron (previously Fillon) to win the French Presidential election, with a 35% probability.

Strategy: EUR's election-related weakness seen extending versus USD & GBP.

EUR: Hedge funds and institutional investors have been selling EUR over the past month and Citi analysts note that there is heavy demand for EUR puts on the April and May French election dates. EUR/USD remains on target to test 1.0520 support.

GBP: More resilient than EUR with the 0.8510-15 area seen as first support in the EUR/GBP cross followed by 0.8400-50. A break would suggest extended losses toward 0.8000. UK inflation data to be released tomorrow is key with rising inflationary pressures potentially adding to further GBP outperformance against the EUR.


Canada added 19.4k jobs in March, significantly beating consensus expectations for 5.7k. Most of the gains were in full-time jobs. Citi analysts believe that the positive tone of the economic data is likely to make the Bank of Canada(BoC) relatively more upbeat in its assessment of the economy.

Strategy: AUD to continue underperforming NZD & CAD.

AUD: The outlook for the AUD remains bearish with support at 0.7500 ahead of the Reserve Bank of Australia's (RBA's) Financial Stability Review and the employment report over the upcoming days. Citi analysts note that investors continue to sell the AUD, causing it to underperform against the NZD. AUD/NZD has now fallen below the critical support at 1.0800. AUD has also underperformed against the CAD where expectations are for a more upbeat tone from the BoC. Citi analysts warn that a break below the 0.7500 support in AUD/USD may potentially extend the selloff to the 0.7240 area with an extended decline targeting 0.7145-60.

CAD: In addition to the prospect of a more upbeat tone from the BoC this week, Citi analysts' expectation of stronger oil prices are also positive for the CAD. Citi analysts expect a fall in crude oil inventories and an extension of the output cuts by major oil producers to push Brent prices over $60/bbl. This scenario is likely to cause the CAD to further outperform the AUD.

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