A rebound in risk appetite after yesterday’s wash-out in equity markets was apparent overnight, with the rally in hydrocarbons continuing to put pressure on the greenback as the hopes and dreams of dollar bulls starts to fade. Market participants have been intently focused on the negative implications surrounding the blow-out of the March trade deficit in the United States, and the probable revisions associated with the net export drag pushing Q1 GDP growth into negative territory. Though extenuating circumstances like the port closure in Q1 are likely to have skewed the trade balance numbers somewhat, and April figures will need to be confirmed before concerns around second quarter growth are raised, yesterday’s sluggish export performance increases speculation the relatively strong greenback will start to become more of a focus for the Fed, causing the FOMC to potentially hold off raising rates until 2016.
The derailing of the one-way trade in the big dollar has no doubt been a result of relatively weak first quarter economic performance, but this has been exacerbated by the fading deflation threat in Europe as oil prices rebound, and green-shoots in credit and lending growth begin to emerge as the ECB asset purchase plan gets underway. The better than expected performance from the Eurozone was lent credence overnight as final PMI readings for March showed the composite reading for the zone ticked up to 53.9 from the flash estimate of 53.5, further questioning the strength of the macro divergent monetary policy theme that was playing throughout the start of 2015. While we realize the momentum is not on the side of dollar bulls, April employment data for the US will play a big part in rationalizing whether a rebound in the second quarter is feasible. EURUSD pushed into the low 1.12s ahead of this morning ADP employment report, though developments from the non-monetary policy meeting the ECB is holding on Greece will also drive price action into the latter half of the week.
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