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    Weekly market overview April 22 - 26

    The US dollar was the strongest currency last week on the back of record-breaking growth in US equities and better-than-expected macroeconomic data. The US dollar index, which measures greenback’s strength versus a volume-weighted basket of six major currencies, soared to the highest rate since September 2017, breaking several critical technical resistance levels. The bullish breakthrough started last Tuesday and followed with the two-day rally, which was halt despite the positive surprise in US GDP report. The pace of the economic expansion was much higher than many analysts were expected in the first quarter of 2019, and that news forced investors talking about a possible rate hike this year by the Fed, lowering chances for a rate cut. Although US equities continued the uptrend, 10-year Treasury yields fell sharply closer to the end of the trading week, signalling an additional demand for long-term savings from overseas fixed-income market players. Euro and Swiss Franc suffered the most losses among European currencies, while the New Zealand dollar and several emerging markets currencies managed to recover a decent part of mid-week losses. Japanese Yen did not reflect the surge in demand for US equities amid pessimistic position by the Bank of Japan, lower liquidity and trading volume, and repatriation seasonal flows.

    Of course, the critical event was the preliminary reading of the GDP report for the first quarter, which showed that the slowdown was temporary and the US economy is coming back to a robust pace of growth this year. However, the surge in demand for dollar-nominated assets started earlier, and the rule of buy rumours sell facts played out last Friday, right after the GDP release. Weekly initial jobless claims dropped to 50-year lows, signalling stable labour market in the United States. Consumption jumped, spending increased but the inflationary pressure remained low. The upcoming Fed’s meeting and rate decision will put the US dollar under a threat of a deep pullback just as it happened last month when Powell expressed a more dovish position than it was widely anticipated. Talks about a rate hike renewed the buying pressure for the greenback last week, however, the big question is whether the optimistic data would be enough for the regulator to come back to the tightening cycle, or should the Federal Reserve keep the wait-and-see position. Another essential report will be the US Non-Farm Payrolls report this week as it traditionally reflects the overall economic sentiment in the United States. 

    The single European currency charted the lowest weekly close rate versus the US dollar in two years. The main driver for that price action was the demand for the greenback across the board. However, the European data did not add any optimism, especially on the back of weak IFO business survey, which showed that the German economy is slowing down dramatically. The US-EU trade tensions and threats of new import tariffs, as well as dovish ECB’s position, kept weighing on EUR/USD, which closed the trading week slightly below 1.1150 support for the first time since December 2016. The technical sentiment is negative, and we might see the bearish continuation this week, even though the likelihood of a temporary rebound is still on the table. 

    The New Zealand dollar was leading the currency market last Friday with NZD/USD bouncing off the mid-week bottom and recovering almost all of the previous losses. The main driver for that unusual activity was the New Zealand trade balance, which improved the positive surplus with a jump of seven times higher than economists were predicting. The main driver was the Chinese demand, as the second largest world’s economy posted much stronger-than-expected import volume in March. If positive data continued surprising dovish RBNZ, then the regulator would take a rate cut off the table, adding more buying pressure for NZD/USD. Technically speaking, the pair had completed the bullish reversal pattern on the daily chart, and the likelihood of a bullish breakthrough is comparatively high.

    The Canadian dollar was one of the weakest currencies amid dovish Bank of Canada. There was a specific improvement in Canadian economic data, especially in the labour market, however, that was not enough for the regulator to step-off the dovish rhetoric. BoC Governor Poloz talked about the uncertain consequence of the recent slowdown in the Canadian economy during his press conference right after the interest rates decision. WTI Crude Oil failed to break through significant technical resistance of $66.50 per barrel, starting a bearish retracement for the first time in ten weeks. That did not add support to the Loonie, and USD/CAD had tested local high levels around 1.3530 last week with more room to go north in the nearest future. 

    The Bank of Japan left the interest rates unchanged last week, suggesting a softer monetary policy in the third largest world’s economy as the macroeconomic data was weak recently. That was supposed to support USD/JPY, especially on the back of rallying US equities, however, the pair was stuck below the resistance level of 120.00 yen per dollar and even bounced back down to 111.50. The British Pound was traditionally weak versus the greenback and yen as the Brexit saga failed to impress Sterling traders before the Bank of England’s meeting in May. Therefore, GBP/USD and GBP/JPY continued the bearish slide. But the most losses were seen in the Australian dollar. AUD/USD and AUD/JPY lost the ground amid weak reports, lower demand for Australian exports and uncertain situation in the local labour market. Although gold price recovered somewhat, the general trend was not in favour of the Aussie. USD/MXN tested local resistance of 19.20, but the overall demand for Mexican Peso from currency speculators pushed the pair back below the psychological mark of 19 poses per one dollar. Further weakness is seen for the upcoming week. 

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