Dollar Recovers Fed Driven Losses on Safe-haven Flows

The US dollar had a wild week, finishing the week mixed against its major trading partners, as market participants reassess the effects of the Fed’s dovish commitment and how much weaker the German economy will become.  Risk-aversion remains the key theme for financial markets after the three-month/10-year yield curve inverted for the first time since the financial crisis.  The trade war and Brexit took a backseat this week, but a key trade meeting in Beijing and votes in Parliament will deliver crucial updates to the next respective steps.  All eyes will also be on the Attorney General as he will be concluding his review of the Mueller Report.

Euro sinks as recession concerns grow for Germany

The euro collapsed after German PMI data contracted for a third consecutive month, making many economists who expected Germany to stabilize scratch their heads.  As the German manufacturing sector falls further into contraction territory, many are pricing in much lower growth for the largest economy in the euro zone.

The ECB is not going to be raising rates anytime soon and recessionary concerns could start to raise expectations of further stimulus from the Bank.  Euro weakness is now also approaching some longer-term technical levels at 1.12 and if that breaks, deeper support could come from the psychological 1.10 handle.

Gold stronger on Fed and safe-haven flows

The precious metal had two main catalysts for bullishness this week.  The Fed’s decision to wipe out all rate hike increases for 2019 and their downgrade of their growth outlook signaled to investors that the Fed is very concerned about the economy.  The other key catalyst was the slower global growth concerns that stemmed from the weaker than expected PMI data from Europe.

In the short-term, it appears there are not many economic releases or triggers that will alleviate weakening economic growth concerns.  Trade deal optimism has derailed many of golds rallies in recent months, but we may see markets be less optimistic until we see a meeting on the books for President Trump and Xi.

Oil

Oil prices are under pressure as global growth concerns spark fears that demand might be softer than expected. The fundamental case for higher prices still remains valid, but if we continue to see further deterioration in Europe and Asia, we could see production cuts matter less.  Rising production from the US is expected to make fresh record highs and ultimately be a headwind for higher crude prices.

Brexit

Another critical week for PM May is upon us.  This could be her last stand as she tries to push through her unpopular Brexit deal through Parliament.  The March 29^th Brexit deadline has been pushed back to April 12^th.  The pressure is on for May to try to deliver a Brexit deal or we may see a long extension.

The British pound remains vulnerable to a no-deal Brexit, but many scenarios still remain in play, but we could get further clarity after UK Parliament votes on many amendments.  Control of Brexit, leadership challenges and referendums are all in play next week.

Monday, March 25th 
Apple’s to introduce a new video streaming service
GBP Parliament time possibly to debate on Brexit options.
 
Tuesday, March 26th
GBP Possible vote on May’s Brexit deal
10:00am USD Consumer Confidence
9:00pm NZD RBNZ Interest Rate Decision
 
Wednesday, March 27th 
GBP Possible vote on May’s Brexit deal
4:00am EUR ECB Draghi speaks in Frankfurt
8:30am CAD Trade Balance
8:00pm NZD ANZ Business Confidence
Thursday, March 28th 
Mexico Finance Ministry works with Congress on a preliminary budget proposal
8:30am USD Final Q4 GDP q/q
4:00pm NZD RBNZ Gov Orr speaks in Wellington
Friday, March 29th 
5:30am GBP Current Account
8:30am CAD GDP m/m
 

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