Despite encouraging news on the Suez canal blockage, risk assets still face headwinds from Europe and there are no signs yet that the corrective dollar rally has run its course.

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USD: Cautious start to the week
A new week starts with a focus on the leverage offered to Archegos Capital Management, with media reports suggesting the hedge fund has faced margin calls and been forced to reduce its portfolio of technology stocks. Having been blamed for weighing on technology stocks on Friday, fears of a ripple effect through market positioning did not materialize in Asia – but it is a story that should be followed. And despite encouraging news from the Suez, it seems that risk assets largely face headwinds from Europe, where case numbers in northern Europe (especially France) continue to advance and German Chancellor Angela Merkel may now seek legal authority to over-ride the lethargy seen by Germany’s regional leaders in imposing lockdowns. As we discuss in our G10 FX Week Ahead, there seems no sign as yet that this corrective dollar rally has run its course. Some strong March labor market data (ADP Wednesday, nonfarm payrolls Friday), plus the launch of President Biden’s infrastructure package can keep the dollar supported. 93.20 is our forecast high on DXY this week.
EUR: Muddling through
The EUR/USD bounce failed to make much progress on Friday, probably leaving it vulnerable to 1.1700 this week. Quarter-end re-balancing flows will probably come into focus over the coming days and here we may witness some net EUR selling given that eurozone equity and debt markets have outperformed those of the US in the first quarter and therefore may need to be rebalanced lower.
GBP: EUR/GBP continues to press 0.8540 support
Trends in the virus look very different either side of the English channel and whilst that remains the case, EUR/GBP should stay pressured. Despite fears of virus resurgence in the UK, currently, the government’s reopening plans are on track, and instead, the focus is trying to tighten border restrictions. We do note, however, that e.g. the pace of French Covid-19 vaccinations seem to be moving in the right direction, but until case numbers in northern Europe reverse – and an easing, not tightening, of restrictions can be considered – EUR/GBP looks biased to the 0.8470/8500 area.
Disclosure: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...
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