Markets quiet but USD looks vulnerable on pause in Fed cut fade trade - Scotiabank

Markets are quiet heading into Friday's NA session with limited movement across most of the G10 currencies and minimal dispersion in terms of performance, aside from NZD (outperforming on higher than expected inflation expectation data) and SEK (underperforming in response to Riksbank Gov. Thedeen's latest speech). The USD is up on the week but has given up much of its early gains and has traded defensively in the period following Tuesday's CPI release. The market's focus remains centered on trade following the easing of tensions between the US and China, as focus shifts to next week's US/Japan talks, Scotiabank's Chief FX Strategist Shaun Osborne notes.

USD is ending the week with a modest gain

"President Trump has said that his administration will be setting tariff rates for most countries in the coming weeks, while negotiators continue their bilateral discussions with the US's largest trading partners. Beyond FX, the market tone is mixed as US equity futures extend their rally to fresh highs while US yields drift lower, extending their reversals from Thursday. Rates markets appear to be repricing a marginal amount of Fed easing on the back of Thursday's broad (Empire, Philly, retail sales, NAHB, industrial production) data disappointment, ending the relief trade that characterized much of the price action month-to-date."

"This development does not bode well for the broader USD and may set the stage for renewed medium-term weakness following the countertrend recovery we've observed over the past few weeks. In commodities, oil prices are steady and finding some support amid renewed skepticism about the prospect of a US/Iran nuclear deal despite this week's efforts by President Trump. Copper prices continue to consolidate at the midpoint of their recent range and gold is trading heavily, ignoring softer yields as it responds to headlines from the Russia/ Ukraine talks in Istanbul."

"Friday's US release calendar is heavy, and includes housing starts and building permits along with import prices at 8:30am ET. The highlight will be the 10:00am ET release of the UMich sentiment survey (preliminary), followed by TIC data at 4pm ET. The TIC data are for the month of March and will therefore not (yet) capture the Treasury market turbulence from early April. Friday's Fedspeak includes Daly (typically dovish), and Barkin (hawkish)."