Worrying US employment and housing data next week should continue to give hints about the painful price of the pandemic. Bad data seems, however, unable to dent the recent dollar strength, and DXY should remain above 100. Sterling, instead, may have another rough week as markets seem dangerously complacent on Brexit transition risk.

USD: No imminent reversal 

DXY:

• The dollar came out once again as a key outperformer this week as a) its safe-haven character allowed it to benefit from the fragility in equity markets and b) the Fed confirmed negative rates are not an option. Global risk appetite continues to be the key driver for the dollar, which remains quite unreactive to the slew of bad US data (on the employment side, in particular). With this in mind, a correction in the dollar will likely have to coincide with a quite optimistic turn in terms of re-opening plans and above all with signals that the global economy isindeed restarting. 
• Next week, the focus will be once again on initial jobless claims as markets hope for a sub-2.5 million reading, on housing data (likely to provide a gloomy picture of the real estate market) and on the FOMC minutes from April’s meeting. Even if the minutes confirm Powell’s recent pessimistic view on the economy, the dollar’s lack of correlation with the US data-flow should allow the greenback to retain its strength. Elsewhere, the Chinese AnnualParliamentary Meeting will be monitored as the yuan (which is experiencing a period of low volatility) has an history of facing downward pressure as the event takes place.

EUR: Stability ahead

• EUR/USD should remain stuck around the 1.08 level next week. The data calendar does not suggest meaningful risks to the cross in either direction. In the US, the FOMC Minutes (Wed) should not bring much surprise, with the committee likely further downplaying the odds of negative interest rates. The initial jobless claims (Thursday) are likely to decline to 2.5 million as the re-opening of the economy gathers pace. This is still a dismal number, but less bad than what we seen previously. In the eurozone, the forward-looking May PMIs (Fri) should recover from the record lows. If anything, the latter may provide some upside potential to the cross at the end of the week.
• With commodity prices stabilising and the risk of President Trump further escalating the stand-off between the US and China being on investors’ radars, there does not seem a clear catalyst to send risk assets in either direction next week. This should contribute to EUR/USD stability next week.

JPY: More resilience ahead 

• The yen has managed to show some resilience against the dollar appreciation this week and as equities may fail to take a decisive upside turn next week USD/JPY may still attemptto re-establish a gentle downward trend. The Annual Parliamentary Meeting in China mayalso generate some Asia-specific volatility, which could have implications also for the yen. 
• In terms of domestic data, our economists expect the 1Q GDP preliminary read (on Monday) to show a relatively contained 1.6% year on year contraction, which may set off the yen for a good start of the week. The 108.80 200-day moving average may consitute a solid resistance for the pair.

GBP: Market too complacent on transition risk

• We expect pressure to gradually build on sterling. Little progress has been made in the UK-EU trade negotiations so far, with both sides reported as being far apart on the conditions of a possible trade deal while the UK continues refusing the extension of the transition period. We view the GBP market as complacent to such a risk. The GBP downside risk being under-priced by the market is evident in i) the GBP implied volatility term structure, ii) speculative positioning and iii) the lack of risk premia in the GBP spot market. We expect pressure on GBP to grow going into the June deadline for the extension of the transition period. Non-extension would likely bring GBP/USD to 1.19 and below by end-June (and EUR/GBP above 0.90).
• It is a very busy week on the UK data front, but this should play second fiddle to the increasing trade negotiation downside risks. The March job market figures (Tue) won’t show the full extent of the damage. Retails sales (Fri) should plunge by 15% month on month while the UK April CPI (Wed) is to fall further on the back of the collapse in the oil price. But as the worrisome data are broadly expected, its impact on GBP should be limited, with the UK-EU trade deal risk premium to be the prime driver of GBP in weeks to come.

AUD: Looking at some stabilisation 

• AUD/USD is back around the 0.6400 mark as a bad market reaction to employment data and choppy sentiment kept AUD under pressure for most of the week. There is no clear catalyst that can decisively change the fate of AUD in the coming days and we may be looking at some stabilisation ahead. 
• Apart from some possible spill-over from the Annual Meeting in China, markets will keep an eye on the Reserve Bank of Australia minutes and the speech by Governor Lowe. Markets seem to recognise thatthe RBA is quite at ease with its current policy stance and QE programme, and we doubt we will see this notion being dented next week.

NZD: Licking its wounds after the RBNZ meeting 

• The Kiwi dollar is by far the worst performing currency in G10 this week as the Reserve Bank of New Zealand doubled down on its asset purchase programme and opened the door to more rate cuts. We had previously highlighted how the RBNZ was likely interested in curbing the NZD appreciation, and surely hinting at zero/negative rates seemed an effective way. We continue to suspect that the Bank won’t eventually cut again, but we admit that after thelatest meeting, the chances of an actual cut have surely risen. 
• Until we get more clarity on the negative rates story, investors may find less interest in the NZD then other procyclical currencies if risk recovers, and AUD may continue to outperform NZD in the coming weeks. Looking at next week though, the NZD may be able to find some stabilisation both against the dollar and in the crosses as the negative effect of the RBNZ meeting fades and global sentiment stabilises too.

CAD: Eyes on oil inventories and retail sales 

• We have recently published an update on Canada and the loonie: we see USD/CAD lingering around 1.40 till the end of 2Q and then breaking down in the second half of the year as oil and risk sentiment recover. We expect 1.31 by year-end. 
• Next week, CPI (low market impact) and March retail sales (start to gauge the impact of the lockdown) will take centre stage in the Canadian economic calendar. However, the loonie’s performance will still be mostly a function of oil, as markets will look for more signs of inventory drawdowns in the US.

CHF: Is 1.05 the line in the sand for the SNB? 

• EUR/CHF is staying broadly under pressure as global risk appetite remains fragile and the EUR keeps trading on the soft side. Rising interest on the franc was shown in the latest CFTC positioning data, which showed that CHF is now the most overbought currency in G10. 
• We don’t have a major risk event in the markets next week but barring a decisively optimistic turn in the markets, some pressure on EUR/CHF may linger. The 1.05 level is close and if the Swiss National Bank is seeing it as the line in the sand, we may see even more support around current levels as the Bank intervenes heavily in the FX market.

NOK: Not a time yet to forcefully break below EUR/NOK 11.00 

• As it is the case for SEK, it will be an ultra-quite week on the Norwegian date front. General risk sentiment and the oil price should be the prime NOK driver. On oil the worst seems to be behind us; the supply demand dynamics have improved and the outlook for 2H20 looks supportive. This by extension suggests that NOK should be heading higher over the course of the year and the large mis-valuation gap (between the NOK spot and its fair value) to continue closing.
• For now, we don’t expect EUR/NOK forcefully and persistently break below the 11.00 level given the ongoing uncertainty about the shape of the global recovery and the meaningful move in global stock markets higher already.

SEK: Quiet week ahead

• It will be a very quiet week on the SEK data front, with no market moving domestic data. After the multi-week SEK appreciation trend, the currency has now stabilised around the EUR/SEK 10.60 level and, over the near-term, this should provide a solid support level for the cross.
• SEK continues to remain well positioned in the G10 FX space, given the less prohibitive interest rate differential and the vastly improved real rate (which turned from one the lowest to the one of the highest in the G10 FX space).