Forex Today: Mixed week for the USD; is it time for some consolidation?
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Forex Today: Mixed week for the USD; is it time for some consolidation?

Here is what you need to know for next week: 

After a week with the focus on central banks, economic data will be back at the center, surrounded by the ongoing banking crisis. The DXY finished the week lower, but looking stronger, resurfacing even as US yields tumbled, helped by a deterioration in market sentiment

A new market season started on March 8 with the Silicon Valley Bank collapse. In the most recent episode, more central banks decided to raise rates showing determination to bring inflation down despite banking jitters. Developments in the banking sector will continue to be critical for sentiment and monetary policy expectations. It has tightened bank credit standards, doing part of the central bank's job. Next week, central bankers will probably stay close to the recent guidance next week. 

On Wednesday, the Federal Reserve (Fed) raised rates by 25 bps as expected, signaling a dovish pace of future hikes. Initially, markets reacted by selling the US Dollar, and Wall Street cheered timidly. That day, markets heard from Fed officials for the first time since the banking system crisis. 

Wall Street finished the week with modest gains, and the VIX dropped sharply. Still, regional bank stocks remain under pressure and with the potential to damage confidence significantly. During the weekend, market participants will stay alert on potential banking news. Also, US Treasury Secretary Janet Yellen could be preparing some surprises. 

Potential movers for next week:

  • Regional bank stocks 
  • US Treasury Secretary Yellen
  • Eurozone inflation numbers 
  • US Core PCE

The DXY settled above 103.00 after testing levels under 102.00. The Greenback rebounded despite lower yields, helped by the renewed concerns. Economic data showed activity, at least before the SVC collapse, was not near a recession. US employment data still presents a tight market. Next week's data includes the Core PCE on Friday, a closely watched inflation indicator. 

EUR/USD finished the week higher, pointing lower, and momentum fading quickly. The pair dropped 200 pips from the 1.0930 area to close around 1.0750, still above the 20-week Simple Moving Average. The preliminary PMIs on Friday showed overall positive figures. The preliminary March inflation numbers next week will be critical. European Central Bank officials continued to speak about the need to do more. Expectations about more rate hikes supported the Euro, which was among the top performers. 

GBP/USD ended the week virtually flat around 1.2220, after being unable to hold above 1.2300. The Bank of England (BoE) raised the key rate as expected to 4.25% (7-2 vote). The bank could rise further if inflation does not surprise to the downside in March. Next Friday, Q4 GDP data is due. 

The Japanese Yen benefited from the decline in US yields, outperforming most of its G10 rivals. USD/JPY dropped for the fourth consecutive week, ending above 130.00, an area that seems poised to be tested again over the following sessions. 

USD/CAD reached monthly highs above 1.3800 and pulled back. Next Tuesday, the Canadian government will present the budget. January GDP will be out on Friday. 

AUD/USD's run from monthly lows ended at the daily 200-SMA near 0.6760, and now it is up to the Dollar to decide how low it goes. Australia will report Retail Sales on Tuesday and critical inflation numbers on Wednesday. Those figures could cement the decision of the Reserve Bank of Australia that will have its meeting on April 4. 

The Mexican peso was the biggest gainer among the most traded currencies, making a solid comeback after plunging during the previous two weeks. USD/MXN lost more than 2%, falling below 18.50. The Bank of Mexico will announce its decision next week. It is seen raising rates further but at a smaller pace than in February, when it hiked by 50 bps. Core inflation is finally coming down in Mexico, with the half-month print at 8.15%, down from 8.21%. 

Note to traders: Daylight saving time in Europe. On the morning of Sunday, Europe will turn the clock forward by one hour. 

 


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