The Week Ahead: 'Super Wednesday' with an ECB Meeting, EU Summit, US CPI & FOMC Minutes


It’s a busier than normal week after US Non-Farm Payrolls data with trade talks between the US and China continuing and the possible announcement of a summit between President Trump and Xi Jinping in late April. We also have an EU Summit, ECB Meeting and US inflation numbers coupled with the latest minutes from the March FOMC meeting – all happening on Wednesday - so this could potentially be the most volatile day in some time.

Here’s what to focus on in the second week in April:


No doubt the all-consuming Brexit process will hog the headlines, with the midweek EU summit set to potentially determine whether or not there should be a ‘flextension’ to the Brexit deadline. Negotiations took a new twist last week with PM May’s olive branch or trap, depending on which side you are on, sadly not amounting to much. The impasse on Friday was highlighted by Labour stating that “we are disappointed that the government has not offered real change or compromise”. The key focus will therefore be if the deadline is extended from May 22, the day before the EU elections, to June 30. Although the EU is currently digging in its heels about another extension without any good reason, we think it will be granted and is likely to last much longer than the prime minister might want. The technical undertone to cable remains soft which might allow sterling to drift lower. Major support comes in around 1.2970/75 and we would expect this level to hold near-term at least.


It is unlikely that the market will get any new signals from the ECB Meeting, especially after the fireworks of the previous rendezvous. Do note this meeting is on Wednesday so a very rare non-Thursday occurrence! European macro data is still weak even as global indicators have picked up. The March minutes confirmed that policymakers are worried about ongoing downside risks and split over whether to provide even more policy support. We should see this cautious tone reaffirmed by Mario Draghi with no specific details on the new financing operations (TLTRO3) and any possible tiering system. EUR/USD was effectively little changed on last week though price action once again failed to hold losses below 1.12.


Finally, turning our attention Stateside, focus will be on the Federal Reserve minutes which should give us some colour on what were major policy shifts at the meeting. Updated perspectives on the headwinds to the global outlook and this year’s improved market tone will be of particular interest. What may it take for Powell & Co to deviate from their current ‘patient’ stance?

Also released earlier in the session is US CPI data which is likely to rise +0.2% in March implying an unchanged annual inflation rate at 2.1% y/y, which is broadly in line with the Federal Reserve’s medium-term target of 2.0%.

After the much anticipated, but generally mixed US jobs report, the dollar went bid into Friday’s close and ended up as the strongest major last week. We note that volatility is still low at present seemingly due to traders not having great conviction towards any of the major currencies, given the slowing economic trends and ongoing risks. Indeed, recently the spread in net positioning either for or against the five major currencies has been remarkably slim. That said, volatility is proven to be non-random and is likely to expand following periods of contraction. So, let’s not get too lulled into this current environment as we know surprises are unforeseen and can occur very abruptly! Have a great trading week.

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