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Dollar Rally Depends on US Rates

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  • SNB keeps the EURCHF peg at 1.2000
  • ECB Monthly report says that 1T LTRO has had decisive impact on the market
  • Nikkei up 0.72% Europe up 0.14%
  • Oil at $105.43/bbl
  • Gold at $1648/oz.

Overnight Eco

  • AUD Consumer Inflation Expectation ( MAR ) 2.7% vs. 2.5%
  • NZD Business NZ Performance of Manufacturing Index (FEB) 57.7 vs. 50.8
  • EUR Euro-Zone Employment (QoQ) (4Q) n/a

Event Risk on Tap

  • USD Empire Manufacturing ( MAR ) expected at 18.5
  • USD Producer Price Index (MoM) (FEB) expected at 0.4%
  • USD Producer Price Index Ex Food & Energy (MoM) (FEB) expected at 0.2%
  • USD Initial Jobless Claims (MAR 10) expected at 357K
  • USD Continuing Claims (MAR 3)
  • USD Net Long-term TIC Flows (JAN) expec ted at 29.3B
  • USD Philadelphia Fed. ( MAR ) expected at 11.5

Price Action

  • USD/JPY remains near highs at 83.80
  • AUD/USD slight recovery above 1.0450 but 1.0500 caps
  • GBP/USD rangebound at 1.5650
  • EUR/USD recovers to 1.3050

It's been another very quiet night of trade in the FX market with EUR/USD testing support in early Asia at 1.3000 only to recover to 1.3050 by midmorning European trade. With no major economic data on the calendar currencies continued to tread water marking out very narrow ranges. The FX market has shifted its focus from trading in tandem with stocks to now trading in tandem with bonds and prices oscillated in sync with the yield on the US 10 year.

EUR/CHF briefly fell below the 1.2100 level in morning European trade after the Swiss National Bank failed to raise the floor on the pair reaffirming its commitment to keep the pair above the 1.2000 figure. Currency traders had speculated that Swiss authorities would boost the peg in order to further weaken the franc.

The SNB kept its overnight lending rate at 0-.25% and noted that even at its current rate the Swiss franc remains high stating that, "If developments in the international economy are worse than foreseen, or if the Swiss franc does not weaken further, as expected, downside risks for price stability could re-emerge. The SNB stands ready to take further measures at any time if the economic outlook and the risk of deflation so require."

The SNB statement today affirms the Swiss authorities commitment to the peg, but also suggests that they are less worried about further stress on the euro given the easing of tensions in the EZ credit markets. Still, given the lackluster pace of growth in the EZ and the prospect of very low European interest rates for the foreseeable future, it is difficult to imagine that the EUR/CHF pair could rally much higher due to organic demand. The pair has remained moribund between 1.2050 and 1.2150 since the start of the year and this narrow range is likely to continue unless EZ growth prospects improve markedly over the next several months.

In North America today, the market will get a glimpse of a smattering of second tier reports including Empire and Philly Fed data as well as the weekly jobless claims. Expectations are mixed for the two manufacturing releases, but the weekly jobless claims may be the key data point to keep an eye on. After consistently beating forecasts, the weekly jobless claims number has plateaued at above the 350K level over the past month suggesting that labor demand growth may be starting slow. If the report today prints below the 350K level, it should embolden the recovery bulls and send US rates higher extending the rally in the greenback, but if the data misses the forecast it will likely cause a pullback in US rates and decline in the greenback with EUR/USD targeting 1.3100, cable eyes 1.5700 and Aussie returning to 1.0500 as the day progresses.

FX Upcoming

Currency GMT EST Release Expected Prior
USD 12:30 8:30 Empire Manufacturing ( MAR ) 18.5 19.53
USD 12:30 8:30 Producer Price Index (MoM) (FEB) 0.4% 0.1%
USD 12:30 8:30 Producer Price Index Ex Food & Energy (MoM) (FEB) 0.2% 0.4%
USD 12:30 8:30 Initial Jobless Claims (MAR 10) 357K 362K
USD 12:30 8:30 Continuing Claims (MAR 3) 3.416M
USD 13:00 9:00 Net Long-term TIC Flows (JAN) 29.3B 17.9B
USD 14:00 10:00 Philadelphia Fed. ( MAR ) 11.5 10.2

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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