US Dollar, Treasury bonds in focus

Elsewhere, the South African rand has remained the darling of EM, finishing last week near a three-year high against the US dollar as president Zuma resigned. Now begins the hard work of repairing the nation’s finances, a task that won’t be easy. A key event risk this week is Wednesday’s announcement of a new South African budget, which could give an indication of how seriously the new leadership is taking the need to repair the damage done.

The G-10 rundown

USD – the bounce on Friday came from the edge of the abyss in EURUSD and USD Index terms. It seems that the most supportive combination for the greenback this week would be a strong bond auction and return of risk aversion as it would challenge the narrative on two fronts.

EUR – the 1.2500 level is proving a tough nut to crack for EURUSD as big round levels are often cause for pause in this super-major. Recent market action suggests that this pair is more tightly correlated with the rise and fall in risk appetite, perhaps as long EUR and short USD are strong consensus trades.

JPY – we discussed the risk of a significant breakdown in USDJPY recently, but have been surprised at the vigorousness of the move even as risk appetite staged a significant recovery last week. Hard to believe that broad JPY strength continues here if we continue to see strong risk sentiment.

GBP – sterling remains locked in the range versus the euro, as we await further signs from the Brexit front, apparently. Some earnings and employment data on Wednesday the data highlight of the week for the UK.

CHF – a bit surprising that EURCHF didn’t rebound more enthusiastically to the bounce in risk sentiment, suggesting perhaps lingering concerns about the March 4 Italian election and the German SPD party vote on the grand coalition the same day.

AUD – the AUD saw a weak close on Friday, but the key commodity prices for Australia have rebounded recently. The bears in AUDUSD can keep their hopes alive if we remain below 0.8000, though better confirmation would be a strong drop back through 0.7750.

CAD – USDCAD has put in a bounce near the 21-day moving average, as the pair remains in limbo and the 200-day moving average is declining towards the top of recent price action soon. Bulls need a close above the 1.2600-50 area to argue for an upside break, as well as perhaps a fresh sell-off in crude oil. Canada Retail Sales and CPI up on Thursday and Friday this week, respectively.

NZD – the strong kiwi has been interacting with its 2018 highs above 0.7400, the last resistance zone ahead of 0.7500+. We have long-term valuation concerns on the kiwi, but no visibility on what would spark a sell-off as the currency largely escaped the recent bout of volatility.

SEK – key test for EURSEK tomorrow if the market backdrop is quiet as Sweden reports CPI.

NOK – EURNOK tilting back lower on recovery in risk appetite and crude oil. The 200-day moving average has risen to the bottom of the range this year just above 9.50 – making this are pivotal for downside prospects.