G10 FX Week Ahead: Springing Forward With The Fed

In a week in which the clocks go forward in North America, FX markets will be focusing on the FOMC meeting on Wednesday. It looks too early for a significant change in the Fed’s dovish tone. Risks assets could strengthen and USD weaken once this risk event passes. Elsewhere, the BoJ policy review will be in focus, while the BoE should not surprise markets.


Spot (DXY): 91.8170

Week ahead bias: Mildly Bullish

Range next week: 91.2000-92.2000

1 month target: 91.0000

  • The highlight of the week ahead will be Wednesday's Fed meeting. We'll get to see a new set of quarterly projections, where 2021 GDP will likely be revised higher from the 4.2% median in December. There will also be a lot of interest in the Fed Funds rate Dot Plots. Does the Fed 2023 Dot Plot median shift to a 25bp hike? Probably not, but the dollar would probably rally if it did. Yet a largely unchanged FOMC statement and a Jay Powell press conference repeating that the Fed has a long way to go before reducing stimulus should prevent the dollar running too far ahead. That said, it is hard to see the Fed Chairman altering his laissez-faire comments about the US Treasuries made to the WSJ just a couple of weeks ago. And on the subject of Treasuries there is huge focus on whether the Fed extends its US Treasury exemption from the Supplementary Leverage Ratio - due to expire at the end of the month. Failing to extend it would be a big surprise, hit Treasuries and also hit equities on the view that US banks would have to raise more equity capital.
  • Away from the Fed, US data released over the next week should be a little less impressive. February retail sales should correct lower from the stimulus-inspired January surge. And poor weather will have impacted February industrial production. Also look out US-China political developments, where senior officials meet in Alaska on Thursday ahead of an annual US report to Congress on Friday detailing security implications of the US economic relationship with China. Also remember that US clocks spring forward early Sunday, briefly narrowing the time difference with Europe.

EUR: Waiting for liftoff

Spot (EUR/USD): 1.1925

Week ahead bias: Neutral

Range next week: 1.1835-1.2050

1 month target: 1.2200

EUR/USD has held good support near the 200-day moving average at 1.1830 and the big question is: was that the correction? With US Treasury yields still near 1.60% and a big Fed event risk to come next Wednesday, it is probably too soon to declare that EUR/USD is ready to resume its rally. Covid challenges in continental Europe aren't helping the EUR either, where rising case numbers, slow vaccine roll-outs and doubts about the AstraZeneca vaccine are all delaying recovery hopes.

It is a quiet weak for European data after the recent ECB fireworks. And the ECB have said their front-loaded PEPP buying will not register in the weekly reports until Monday, 22 March. However, we do not think more aggressive PEPP will have much impact on the EUR. Also look out for German regional elections on Sunday. A heavy defeat for Merkel's CDU party could briefly upset the EUR in Asia on early Monday. Please see a full German election preview here.

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