April 2021

Good Morning All, the first signs that an economic recovery is underway in the UK were seen on busy high streets and roads last week and in figures released by the Office for National Statistics (ONS).

According to this report, CHAPS data showed that spending had rebounded to 91% of the pre-pandemic level and footfall in shops was at 75% of its 2019 level. Hopefully, these figures will continue to grow, and the release of the pent-up demand that the Bank of England has been touting turns into reality. Europe also seems to have turned a corner with its vaccination rate increasing steadily, and whilst still lagging both the UK and the US, it now looks better placed to achieve its targets. The markets remained relatively quiet, taking the good news in their stride, and over the week, sterling held steady against the dollar and has opened at just above $1.3900. The euro rebounded strongly against both sterling and the dollar as traders reappraised their pessimistic positions, and this pushed sterling down below €1.1500 for the time being.

We have a busy week ahead as the month draws to a close with plenty of data to digest and, most significantly, the monthly meeting of the US central bank, The Federal Reserve. After a week of mixed but mostly upbeat economic data, more of the same is expected. However, with new Covid cases in India topping 300,000 daily, fears of another outbreak remain both here and in Europe. The daily vaccination rate will continue to have a marked effect on currencies, especially the pound, due to the UK’s strong links to the Indian sub-continent. The pound may also suffer some political wobbles with domestic elections looming, which could see the SNP increase its share of the vote in Scotland, leading to pressure for another referendum, at the same time as allegations of sleaze continue to surface. As usual, there will be month-end pressures to contend with, exasperated again by a long weekend in the UK.

UK

Sterling was driven as much by technical factors last week as it was by the economic data that was released and, as it is so often, was buffeted by the shift in international demand for the dollar. Being a “Beta” currency, it rose and fell in tandem with US yields and stock markets and eventually settled unchanged on the week, having failed to break above $1.4000. The released data was generally supportive of sterling, good PMIs, strong retail sales, inflation rising, and unemployment creeping lower, reinforcing expectations of a solid recovery in the country. The data docket in the week ahead is empty, and no speakers are scheduled from the Bank of England; however, Ben Broadbent did give a bullish appraisal of the economy at the weekend. With no data for traders to get their teeth into, we expect the pound to be driven by outside forces, especially in the latter part of the week, after the meeting of the US Federal Reserve and month-end rebalancing starts to come into play.

Euro

The euro put in a good performance last week and ended over a cent up against the dollar and a eurocent stronger against sterling. Confidence is returning, as shown by the Purchasing Manager’s reports that were released on Friday. This will be boosted by the increase in vaccination rates and the further good news that the Karlsruhe constitutional court didn’t stand in the way of the ratification of the EU fiscal stimulus plan. We have a raft of economic data ahead of us this week, and seemingly every member of the ECB is also speaking, starting with ECB Chief Economist Richard Lane today followed by its President Christine Lagarde on Wednesday.  This morning, the IFO business climate readings for Germany are released. On Wednesday, consumer confidence data for France and Germany are issued, with a continuation of the positive numbers of last week expected. The Eurozone sentiment and confidence data are released on Thursday, as is the Consumer Price Index (CPI) for Germany. We close the week with potentially market-moving data with Eurozone CPI, Unemployment, and Gross Domestic Product on Friday.

US

The monthly meeting, on Wednesday, of the US Federal Reserve Open Market Committee (FOMC) will dominate the market’s thoughts in the week ahead. Despite the US economy rebounding strongly and unemployment falling, the Fed is unlikely to change its accommodative monetary policy just yet. However, the press conference after the meeting will be listened to for any hints on future policy changes. Ahead of the Fed meeting, sales of US Durable Goods are reported today, and we then have a lull on the data docket until the regular weekly jobless update and the US GDP figure for the first quarter are released on Thursday. The week closes with a frantic Friday when Personal Income, Spending, and consumption data are released. The highlight on the speaker front will be Federal Reserve Chairman Jerome Powell’s press conference on Wednesday after the FOMC. President Joe Biden is also scheduled to speak at a joint session of Congress when he is expected to expand his controversial plans to raise taxes.

Scandi

The Swedish krona was very much rangebound throughout most of last week, and the lack of macro data did not offer any help for participants hoping for more volatility. This week is far more action-packed, with the Riksbank setting interest rates on Tuesday. Inflation has been creeping up lately, but the Riksbank is not expected to increase rates, and many believe that the 0% rate will remain in place for the foreseeable future. The press conference with Riksbank Governor Ingves will be more exciting and one we will monitor closely. The PPI figures and the Unemployment Rate are released at the same time at 08:30. On Wednesday, we will get a health check on the Swedish retail sector, and on Thursday, we will study the latest Economic Tendency Survey.
Over across the fjords in neighbouring Norway, the Norwegian Krone suffered the same lackluster week as its big brother. This week does not see any important data being released apart from the Unemployment Rate, which is out on Friday. It is expected to have changed ever so slightly, coming down from 4.2% to 4.1%, which may benefit the incumbent government seeking re-election later in the year.

Have a great week.

Synergy Team

Good Morning, England returned to two of its favourite occupations last week, shopping and socialising over a drink, as lockdown measures were eased, like some places in Europe.

Despite the miserable weather, crowds were seen spending their savings and, in doing so, giving a much-needed boost to the economy.

With COVID-19 cases decreasing in the UK, overseas investors were encouraged to buy sterling towards the end of the week, and it has indeed opened stronger this morning at $1.3850, nearly a two-cent increase over the week. Robust US data on employment and retail sales also helped sterling as it weakened the dollar. The pound also fared well against the euro, despite a midweek dip, it gained half a euro cent over the week.

After a week dominated by US data and the Federal Reserve’s policy, we pause for breath this week as the US central bank goes into a speech blackout ahead of its next meeting on 28th April. Our focus now turns to Europe and the monthly meeting of the European Central Bank (ECB). The ECB has been supporting the European economies for over a year but now faces the fresh problem of keeping yields low as US yields rise. If interest rates rise on longer-dated maturities, this could cause issues for southern European countries with the twin problems of an increasing debt burden and another summer without tourists. Domestically we will be watching for further political developments over former Prime Minister David Cameron’s lobbying. We have plenty of domestic data to study this week, including the inflation numbers for February, published on Wednesday, and unemployment data on Tuesday.

UK

Sterling rode a roller coaster last week against the euro, as traders started to take a more optimistic view of the single currency. The fresh buying had the effect of pushing sterling just below €1.1500 at one point before it recovered to €1.1580 where it has opened this morning. Sterling was also hit by vaccine concerns and the resignation of the Bank of England’s Chief Economist, Andy Haldane, who was widely regarded as hawkish on policy. Some investors took his resignation as a sign of disagreement in the Bank of England over letting sterling drift as a post-Brexit policy to help exporters. A busy week ahead on data releases starts tomorrow with the February Unemployment numbers. The latest Consumer Price Index (CPI) is released on Wednesday, which should bounce from its low February level. On Friday, March Retail Sales are published along with flash the April Purchasing Manager Indexes (PMIs) for manufacturing. These are expected to be strong as companies restock ahead of further reopening. We will also be listening for any hints on policy when Bank of England Governor, Andrew Bailey, speaks on Wednesday and from his cohort Dave Ramsden.

Euro

Last week, the euro rallied against the dollar and has opened this morning at €1.1950. The overriding pessimism receded, and traders in the derivative markets adjusted their positions, strengthening the single currency, ahead of the ECB meeting on Thursday. With extended lockdowns still affecting much of the continent, they are likely to maintain an accommodative stance on their emergency bond purchase scheme, capping any rise in interest rates, which is in sharp contrast to the US, where the Federal Reserve is apparently happy to let yields rise. Also, of concern to the ECB will be continuing slow progress of the €750bln EU recovery fund, which is still held up in the German courts. Apart from the ECB meeting and press conference on Thursday, there is not much on the data docket apart from April’s Consumer Confidence on the same day and Markit’s early snapshot of April’s PMIs on Friday.

US

The direction of the dollar was again set mainly by the movement of US Treasury yields last week, which had marched up the hill then promptly turned around and eased back down. The move back down caught many investors and traders off guard, especially after such strong employment and retail sales data had been released. There was no clear catalyst for the price action, and this will keep traders on their toes in the week ahead, as will the ongoing geopolitical tensions, especially those with Russia over Ukraine. A tranquil week looks in prospect in the US with the Federal Reserve on speech blackout until its next meeting on 28th April. The only significant data to look forward to will be the weekly employment data on Thursday and, in common with the rest of the world, the first look at April’s PMI data.

Scandi

The Swedish krona made a big comeback last week, strengthening considerably against most G10 currencies. The main catalyst behind this was the better than expected CPI figures coming in at 1.7%. In other words, not far off from the Riksbank target and primary goal of 2%. Furthermore, what assisted the Swedish krona was the lack of other macro data releases and comments from the Riksbank (yes, sometimes no news, is good news). This week sees no important data releases, and we will monitor the key resistance levels closely along with any updated technical analysis studies.

EURNOK is hovering above a key resistance and psychological level of 10.0000. Otherwise, the Norwegian krone had a quiet week finishing stronger than it started. This week sees no important data releases from Norway either, which means we turn our attention to the EUR, the number of vaccinations, and any indication that this summer will see holiday travel resume remembering that the oil price heavily influences the Norwegian krone.

Have a great week!

Synergy Exchange Team

Good Morning, The pound suffered from an almost perfect storm last week and gave up much of its recently hard-won gains to finish the week at nearly two and a half euro cents lower than it started. The worries over the danger to health from the Astra Zeneca vaccine came to the fore almost simultaneously with Europe showing a more coordinated approach to vaccination.

The growing unrest in Northern Ireland and worries over the Union’s future, coupled with the SNP looking likely to secure a healthy majority in the upcoming elections was also unsettling for the markets. Sterling also had the largest speculative long positions (according to the Commodity Futures Trading Commission), which made it most vulnerable to these changes in sentiment.

The week ahead sees the financial markets return to work, creating more liquidity than we have been accustomed to recently. With the next stage on the roadmap reached, with non-essential shops reopening today, the UK is slowly returning to normal. However, investors will continue watching nervously for any upswing in the daily COVID-19 hospitalisation rates for a few weeks to come. There is a shortage of data due for release in the UK; instead, after last week’s reaction to the potential political instability in the Union, overseas investors will be keeping a nervous eye on events not only in London but also in Belfast and Edinburgh.

UK

The pound came under consistent selling pressure last week, for the first time this year as investors revaluated the political risk of the Union breaking up. The move downward against the euro was exaggerated by the previously overbought level of sterling and triggered by doubts over the Astra Zeneca vaccine’s risks. It is still under some pressure this morning and has opened at just above €1.1500. The UK regulator has pointed out that the benefits of the vaccine far outweigh the risks, and the UK remains on track to have the majority of the population vaccinated by July. Having reached the technical points that seemed to have been driving a lot of the price action, we expect a bounce-back towards its previous levels in the next few days. On the data front, there is a little to excite, apart from the British Retail Consortium’s take on Retail sales released this evening and February’s GDP and Industrial Production numbers on Tuesday. As the Brexit induced disruptions of January are dissipating, analysts are looking for a modest improvement in the numbers.

Euro

The euro had a good week last week, gathering strength against both sterling and the dollar as investors saw that at last, the vaccination programme was starting to work in Germany and France. Also helping the euro was the hint from Robert Holzmann, Governor of Austria’s Central Bank, that the ECB may start to taper their bond purchases sooner rather than later, which would be a significant divergence from the stance the US is taking. However, with the €750bln recovery fund still facing legal challenges, it is hard to see how this could happen. The euro continues to be vulnerable in the week ahead to the increasing tensions on its Eastern borders between Russia and Ukraine and has opened below $1.1900 against the dollar. On the data docket, the EU will publish its February Retail Sales this morning, while Germany will release the April ZEW Economic Sentiment Survey tomorrow. On Wednesday, we have Eurozone February Industrial Production, while Germany will release its March inflation figures, and the week closes with Eurozone Consumer Price Indexes.

US

With employment looking fair and the economy reopening rapidly, fears of inflation are growing in America. As would be expected, interest rates are starting to rise, and these moves upward could be compounded as the US issues more debt via an auction this afternoon. The importance of rising interest rates is that they will pull the dollar higher as investors seek the best return for their money. So far, the Federal Reserve has stuck firmly to the script of not changing policy till full employment is achieved. The Federal Reserve has another opportunity on Wednesday to reiterate their commitment when several members, including the Chairman, give their last speeches before entering a two-week purdah (a period of silence that politicians have to observe before an official announcement) ahead of the next Federal Open Market Committee (FOMC) meeting on April 28th. It is unlikely that they will change the script despite what are expected to be strong economic data releases in the week ahead. Apart from listening to Jerome Powell’s speech, we will be watching March’s Consumer Price Index on Tuesday. A busy Thursday is in prospect with Retail Sales, Industrial Production and Jobless numbers all released.

Scandi

The Swedish krona had a nice comeback last week, strengthening more than 1.2% against the euro and 3.5% against sterling. On Wednesday this week, we will get the latest CPI (inflation) reading. It is expected to come in at 1.6% on a year-on-year basis, an increase of 0.2% from last year. This is the only set of important macro data to be released this week.

The Norwegian krone had a worse week, weakening against all G10 currencies and is once again trading at parity against its big brother. Prime Minister Solberg was fined NOK20,000 for breaking her COVID-19 restrictions, implying a guilty verdict, with only five months to go until the General Election. The centre-left opposition is heavily tipped to regain power from Solberg, who has run the country since 2013. This week we will get the GDP figure expected to have contracted 0.4% on a Month-on-Month basis.

In Denmark, a study in conjunction with London’s Imperial College last week concluded that the richest 1% benefit most from ultra-low rates. Despite this, economists at Danske Bank said that they expect the Denmark’s National bank to lower the interest rate further to negative 0.6%, from the current negative 0.5% level within the next three months to defend the peg against the EUR and to make sure that the Danish krone does not strengthen too much.

Good Morning, Dollar dominates all

In the run up to Easter, the currency markets remained dominated by the familiar themes of vaccinations and infections, with a strong link between the vaccination programme’s speed and the strength of the currency. As has been the case for the last few weeks, sterling has continued to perform strongly against the euro as Europe’s vaccination progress is still encountering problems. The euro is also coming under pressure from internal political upheaval and an increasingly belligerent Russia on its eastern doorstep as it continues to vacillate over the €750bln fund that it agreed last year with the German Constitutional Court now questioning its validity. Meanwhile, President Biden has unveiled a $3tln package to rebuild America’s infrastructure, and although it is unlikely to pass through the House without change, it’s symptomatic of the divergence between the economies.

The Non-Farm payroll data released last Friday was much better than expected with just under a million jobs created. We have another holiday-shortened week ahead of us and we are unlikely to see the narrative changing too radically over the next few days. The movement of the dollar is likely to continue to dominate the markets and again we will be watching the US Treasury market closely to see whether yields continue to edge higher, especially this coming Friday after the US Producer Price Index is released. With Christine Lagarde telling investors that the European Bond market will stay under the ECB’s control, the yield differential between Europe and its key trading partners is likely to widen, adding yet more pressure to that already weighing on the euro.

UK

Sterling continued to edge gradually higher against the euro last week and has opened at just below €1.1800 this morning, having had its best quarter against the single currency since 2015. The first easing of the lockdown restrictions and the UK’s tentative steps to recovery are in sharp contrast to further restrictions being imposed in France. For some time, sterling has benefited from a vaccine dividend and looks set to continue to do so. The pound has broken up through some key technical resistance against the euro and some investors are looking for sterling to move up towards the €1.20 level over the next few months. Whilst the pound is vulnerable to the resurgent dollar, it is trading relatively strongly to the rest of the G10 currencies and has opened above $1.3900 this morning. With little on the data horizon apart from Construction PMIs on Thursday, a relatively quiet week is in prospect.

Euro

The euro looks set to remain in the doldrums as its vaccination programme continues to lag both the US and the UK and its political problems mount. With the US looking at another fiscal stimulus package, Europe’s €750m response is still not implemented and it faces another challenge by the courts shortly. With little on the data front this week it’s hard to see the negative narrative changing. Its problems will be brought into focus when unemployment for the Eurozone is released on Tuesday. The only other noteworthy data sets are the continent-wide Purchasing Manager’s Indexes released on Wednesday. Apart from that, the minutes from the last ECB meeting are released on Thursday which we will study for hints on how widespread the support for the recent expansion Pandemic Emergency Purchase Programme (PEPP) has been.

US

After the non-farm payroll data reported that nearly one million people found employment in the last month the strength of the US recovery is gaining pace. If this continues then all those that lost jobs during the pandemic will be reemployed within a year. The implementation of President Biden’s “Build Back Better” recovery plan will help this recovery, and the challenge now for him is to see how much of his plan he can get approved. The significant events in the week ahead will be the release of the Federal Open Market Committee minutes from its March meeting, which should reinforce the Fed’s dovish tone and its willingness to leave the US Treasury market to its own devices. The Chairman of the Federal Reserve, Jerome Powell, has an opportunity on Thursday to further express his views when he addresses the IMF along with several other speakers from the Fed. However, his commitment to full employment is unlikely to waiver. On the data front, the weekly employment data is released on Thursday, which we will be watching for confirmation of the recent jobless trend. On Friday, analysts and traders will be studying the Producer Price index for March for inflationary trends, any sign of which will lead to a further rise in yields and the dollar.

Scandi

The Swedish krona started the month of April by weakening during what was a half trading day with thin liquidity as the nation prepared for Easter. April has a mixed track record, but Q2 is historically speaking a Swedish krona positive quarter. Vaccinations remain sluggish and it appears as if the roll-out has been somewhat halted as the Swedish government is no longer offering the Astra Zeneca jab to the under 60’s. Other things to pay attention to this quarter will be the inflation rate together with the various manufacturing and industrial production figures which will serve as an indicator of how well Sweden’s economy is adapting to a new, hopefully re-opened world. This week kicks off with the Swedbank PMI Services data out today, the Industrial Orders figures released on Thursday and the GDP Indicator and Budget Balance out on Friday.
The Norwegian krone starts trading today for the first time this month as Thursday last week was a Public Holiday. It strengthened throughout March and was briefly under the psychologically important 10.0000 level before month end. This week carries a lot of important data, including the DNB PMI Manufacturing data out today, the Industrial Orders for February on Thursday and the Inflation Figures out on Friday. The latter are expected to sit right above the 3% mark which many market commentators suggest will spur further rumours of a rate-hike by Norges Bank Governor Olsen even before the summer. Should this materialise, Norway would be the first G10 country to raise interest rates since the Covid19 crises began.

Support and Resistance

GBP/USD
Support 1.3738               Resistance 1.4039

EUR/USD 
Support 1.1679               Resistance 1.1925

GBP/EUR

Support 1.1687               Resistance 1.1855
Have a great week!

Synergy Exchange