Global Head of Macro Strategy
Summary: The spike in the euro has taken up most of the market’s mental bandwidth for good reason, but the yen still deserves plenty of our attention this week. Elsewhere, NOK jumps on a hot Norway inflation print this morning.
The euro spike – will we even get much consolidation?
Friday saw nothing much worth mentioning in the US jobs report, so no fresh spark for the US dollar. The toughest exercise for EURUSD traders here is to decide whether the euro is near term overbought and to wait patiently for dips to get involved, or whether we will just continue to shoot higher into the 1.1000+ area without much pause. I lean to the latter, provided we don’t see any massive surprise in the US CPI data on Wednesday (which would probably only provide a minor distraction in any case). Today the pair couldn’t even work its way back to the round 1.0800 level before fresh buying came in as it bottomed out at 1.0805. Another euro pair that has seen far more significant consolidation is EURCHF, which dipped all the way back below 0.9500 this morning before finding support. The lows just about cut the recent rally spike in half. I would still focus on the upside there, with today’s lows as first support and final support/reversal area down in the 0.9425-50 zone.
The news flow continues to support the path to Germany unlocking the debt brake rules and financing the massive EUR 500 billion in infrastructure spending and expanded defense spending as well, with coming Chancellor Friedrich Merz courting the Greens by promising concessions to get the deal signed before March 25 when the old Bundestag period ends (The CDU/CSU and the SPD and Greens make up more than 66% of the old Bundestag, which is needed to alter the constitutional “debt brake” rules to get the fiscal infrastructure and defense deals done. As well, the first talks with the SPD on forming a new government appear to be moving forward quickly.
Chart: USDJPY
USDJPY followed through lower, if in choppy fashion, after the break of the 148.65 low from December. Note that today USDJPY has been contending with the 61.8% retracement of the entire rally wave off the sub-140.00 level to the high just below 159.00. While the trend remains in place here, considerable oomph was taken out of the JPY’s potential last week by the huge spike in European yields, which forced the focus away from the JPY. I have argued that Japan would like nothing more than getting USDJPY well south of here as one of its tools in maintaining a friendly relationship with the Trump administration. The end of Japan’s financial year is also coming into view at the end of this month, so a key time frame for USDJPY in coming weeks. From here to the end of April, the question is mostly one of “how long” before USDJPY is testing the massive 140 area? Part of the answer may be provided by the US CPI data release this Wednesday and whether it provides a distraction and prevents a further drop in US treasury yields (and thus prevents, if temporarily, USDJPY from continuing lower here.) Some are remarking that we have record long JPY positioning in US futures, but the long is still considerably smaller than prior record JPY shorts have been (July of last year saw 182k contracts net short versus last Tuesday’s 134k net long). and this is a new era geopolitically.
NOK rallies on hot Norway CPI data
NOK jumped this morning on Norway reporting a hot CPI print, with the underlying CPI coming in at a spicy 1.0% MoM and 3.4% YoY level versus the 0.5%/2.9% level expected, the first big rise in the YoY figure since it started falling in 2023. This has the market wobbling on the Norges Bank’s supposed coming March 27 rate cut plans for good reason.
Before today’s jump, the NOK has been weak of late on the drop in oil and even EU natural gas prices, but perhaps as well on NOKSEK flows related to that development and the recent huge breakout in the Swedish krone. On the one hand, NOK faces further downside risk a) if the Trump administration is able to achieve even lower prices in crude oil (this looks very difficult from these levels without a massive global recession) or b) in the event of a détente in Ukraine if this is seen as unlocking long term Russian natural gas flows back into Europe. On the other hand, the Norwegian mainland economy will have much to gain from new fiscal expansion in Europe, especially in its aluminum and defense industries. Today’s NOK rally establishes an important line in the sand in EURNOK around the 11.80 area, although the technical situation to the downside doesn’t get more interesting until about 11.52. USDNOK is another way to express NOK strength if looking in the crosses.
The week ahead
Tariffs tariffs tariffs. Tariffs are always in focus, but specifically this week we have the steel and aluminum tariffs meant to go into effect on Wednesday. We’ll also look for whether Trump and Canada’s coming new PM Mark Carney (of BoC/BoE fame or some would say infamy) can cool the temperature. Political hay is being made in Canada from outrage at Trump’s antics on Canada becoming the 51st state as much as the tariff moves themselves and Canada has refused to budge on its retaliatory tariffs despite the US dropping tariffs on USMCA-listed goods. China has moved against Canada with tariffs on pork, canola (rapeseed) and other food products effective March 20. In general, however, the tariff headlines have diminishing, if still some, impact.
US JOLTS job openings survey (Tuesday) – it shouldn’t be a big event, because the data quality in this survey is terrible, but a large surprise can make an impact.
US CPI on Wednesday. This is the key data point of the week for the US, but even an uncomfortably high level might be largely looked through if broad risk sentiment continues to deteriorate.
Bank of Canada meeting on Wednesday – can’t see how Bank of Canada delivers a meaningful surprise – growth risks abound from the tariff tiff for now – so we likely see the expected rate cut (99% priced) plus a cautious outlook with considerable downside risks economically and uncertainty on the inflation front.
Sweden CPI (Thursday) – an important near term test after a massive SEK rally.
US government funding deadline (Friday). To avoid US government shutdown risks, a House bill that would fund the government through September 30 must pass this week and then pass the Senate without the Democrats filibustering it (a procedure to stop actions). US growth will suffer on a shutdown – would the Democrats risk a shutdown to protest the proposed cuts to social spending that is in the bill?
NEW FX Board of G10 and CNH trend evolution and strength.
Note: If unfamiliar with the FX board, please see a video tutorial for understanding and using the FX Board.
The positive euro reading looks surprisingly modest, perhaps, given the scale of last week’s move, but remember that it is an average reading across all G10 + CNH pairings and the SEK has been in what I called “gangster mode” of late, while NOK popped sharply today – see individual pair readings below to see the full picture.
Table: NEW FX Board Trend Scoreboard for individual pairs.
Interesting to see EURJPY trying to flip to positive if it stays at present levels or higher into the close (that is the dark shading), but both EUR and JPY are quite strong. In general, some very strong readings across the FX pairs, with CNH hewing to the direction of the US dollar in the CNH crosses as its volatility stays muted/controlled.
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