FX – Calm After the Storm

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Market Drivers March 20, 2015

Volatility compresses
Stevens – AUD adjustment not yet finished
Nikkei 0.43% Europe .28%
Oil $43/bbl
Gold $1168/oz.

Europe and Asia:
NZD CC Spending 5.8% vs. 6.5%
GBP PSNB 6.2B vs. 7.7B

North America:
CAD Retail Sales 8:30

It’s been decidedly less volatile session in the currency market on the last trading day of the week as major pairs remained in tight ranges for most of Asian and early European trade. After several days of massive turmoil, the markets appeared content to simply consolidate around NY session closing levels.

Although the EUR/USD is well off it post FOMC highs of 1.1040 it is now trading near the 1.0700 level which is still higher than its pre FOMC bid. The price action in EUR/USD indicates that the market may now consolidate in a broad 1.0500 -1.1000 range and that parity in the parity in the pair is unlikely for the foreseeable future.

The Fed clearly shifted the goalposts pushing rate hike expectations to September or possibly even end of year and that change of policy has taken much of the momentum out of the dollar rally. The only way that EUR/USD resumes its creep towards parity would be if EZ economic data began to deteriorate once again which is why next week’s flash PMI readings could prove crucial to the near term price action in the unit.

A better than expected reading in EZ PMIs would provide investors with confidence that ECB’s QE program is starting to work and could propel the pair towards a retest of the recent 1.1000 highs. On the other hand, if the conditions on the ground continue to deteriorate, the euro could resume its drift irrespective of US monetary policy as rates in the region will continue to compress.

With no US data on the calendar today. the markets may continue to meander into the weekend as traders take a respite after what turned out to be one of the most volatile weeks on record. With central bank policy now no longer the primary focus of the market, attention may turn once again to economic data as the key driver of exchange rates.

Boris Schlossberg
Managing Director

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