G10 FX Week Ahead: Hard As Iron

10 and 20 us dollar bill

A potential extension of the China-led sell-off in iron ore prices next week will be at the centre of market focus, with AUD facing the largest downside risk in G10. In the US, the FOMC minutes should have a limited impact and with higher CPI numbers largely processed by the market now, the dollar may start to rejoin its benign bear trend.  

USD: FOMC minutes shouldn’t do too much damage



Week ahead bias Range next week 1 month target



Mildly Bearish 90.0000 - 91.0000 90.0000

2Q21 was always going to be a tricky period for asset markets, where inflation was set to spike and the Fed’s dovish policy would come into question. So far markets have coped reasonably well with April US inflation pushing above 4% and DXY, surprisingly to some, is barely 1% above the lows of the year. On paper, the week ahead should not interfere with this benign trend. The US data calendar is light, just April housing starts and new home sales. And the highlight will probably be Wednesday’s release of the FOMC minutes from the April 28th meeting. Perhaps the key takeaway from Powell’s press conference that day were the words ‘now is not the time to talk tapering’. With that in mind, we expect the markets to absorb in their stride any suggestions that a ‘few participants’ were a little less dovish.

The week ahead will also see China release April retail sales and industrial production. Markets will also be watching whether any Chinese official concern over commodity increases has any follow-through selling in that complex. Investors should also keep an eye on US Big Tech shares. These have been suffering at the hands of higher inflation. It could be a better week for this sector given the US price story should be quieter. Yet a sharp correction lower here looks to be one of the biggest threats to an otherwise benign, and slightly dollar-bearish, outlook.

EUR: So far, so good



Week ahead bias Range next week 1 month target



Mildly Bullish 1.2050 - 1.2200 1.2200

EUR/USD has weathered the first batch of strong US data relatively well. Keeping EUR/USD supported is: i) the Fed committed to looking through the inflation spike and keeping US real rates very negative and ii) confidence growing in the Eurozone recovery and investors starting to ask questions of the ECB whether EUR real rates are right to be as equally negative. In other words, will the ECB have less tolerance of higher inflation than the Fed? Contributing to that debate in the week ahead will be a variety of speeches from ECB big-hitters, such as Lagarde and Lane. We’ll also see the first revision to 1Q EZ GDP (seen at -0.6% QoQ). More important will be first look at the flash PMIs for May (Friday) – expected to stay strong as economies start to re-open after third wave lockdowns.

German elections may drift back onto the market’s radar this week when candidates to replace Angela Merkel debate on Thursday. Latest opinion polls show the Greens still with a slight lead over the CDU/CSU, making the case for greater Green representation in any new coalition government. Green policies of slightly looser fiscal settings and greater European integration are seen as positive for the EUR.

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Disclaimer: 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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