FX MACROECONOMICS
activity and purchases of US goods, which is part of China’s modus operandi.
The Senate confirmation of a Supreme Court Justice hardly seems to be an issue for investors, but it is important now. Trump enjoys a slim majority in both houses. A key strategic choice is whether to seek greater control of the R e pub l ic a n Party, which like all modern parties, is a coalition, or seek support from moderate D e m o c r a t s . To overcome a filibuster over Gorsuch’s nomination, it is possible that the Republicans in the Senate modify the rules to allow a simple majority for judicial appointments. Such a maneuver would antagonize the Democrats and make cooperation more difficult on other parts of the Trump Administration’s agenda.
In the eurozone, survey data has been running ahead of real sector data. German industrial output likely fell, though there was a little sign from the PMI. The final March PMI may slip.
February retail sales are expected to soften. 16 FX TRADER MAGAZINE April - June 2017
The unemployment rate may ease to 9.5% from 9.6%.
It peaked a
little above 12%. These real sector reports are of little significance in the current environment. The key is the reaction function of the European Central Bank, and it is not presently about the real sector, but
reading in February, but industrial output likely fell around 0.5% in February. Norway’s manufacturing output may edge higher March, but manufacturing output likely also fell 0.5% in February.
In broad strokes, we expect US interest
rates to
stabilize and turn higher. There has been a powerful adjustment to the net speculative position in US 10-year note futures. The Commitmen t of Traders data suggests
that
the decline in yields has been a function of bottom pickers establishing new
prices. The weaker than expected preliminary March CPI report dealt a blow to the hawks, who seemingly had been pressing to begin the exit from the unorthodox policies even before the asset purchases are complete. The record of the recent ECB meeting will be released, and it will likely show that the hawks remain in a small minority.
The divergence between the surveys and real sector data is also evident
Te March manufacturing PMI in Sweden may ease from a heady 60.9
in Sweden and Norway.
longs, while short-covering has been minimal. With the help of a rebound in oil prices, and the likely reacceleration of growth (January- March growth has averaged 1.1% beginning in 2010, while the other quarters grow 2.5% on average), a reduced safe haven bid as angst over the French presidential election eases, firmer interest rates will likely lend the dollar better support in Q2 than in Q1.
Marc Chandler
Global head of currency strategy at BBH Brown Brothers Harriman
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