FX Majors Weekly Outlook (13-17 March) | Forexlive

AUD/USD 5 minutes chart

Given that
we are at a point where the soft landing scenario keeps evaporating day by day,
risk
sentiment can turn south at any moment and in FX the best place in such
environments are the safe haven currencies like the USD, the JPY and the CHF.
So, if one wants to short the USD, in case CPI misses or something breaks in
the economy making bond yields to fall, it would be better to express that view
shorting USD/JPY or USD/CHF, because the US Dollar can still appreciate versus
the other currencies as a safe haven.

*Last
night the Treasury and the Fed announced that depositors money will be
protected in full and the Fed created an emergency lending facility
called Bank Term Funding Program (BTFP). This swift and strong action calmed
the markets, and it should give the Fed the greenlight to keep with their rate
hikes.

Tuesday: The US CPI
is without doubt the biggest event of the week and it will most likely decide
how much the Fed is going to hike at their March meeting and what terminal rate
they will project in the Dot Plot. The headline Y/Y is expected at 6.0% vs.
6.4% prior and the M/M reading is expected at 0.4% vs. 0.5% prior. The Core Y/Y
figure is expected at 5.5% vs. 5.6% prior and for the M/M the forecast is
unchanged at 0.4%. Given the recent events with the failure of Silicon Valley
Bank, the market may want to see a notable beat to price in a 50 bps hike and
the Fed, as it has always done, will follow market consensus as it doesn’t want
to surprise.

Wednesday: Fed Chair
Powell also flagged the PPI among JOLTS, NFP and CPI reports for the decision
between 25 and 50 bps hike at the March meeting. The headline Y/Y reading is
expected at 5.4% vs. 6.0% prior and the M/M at 0.3% vs. 0.7% prior. The Core
figures are expected at 5.2% vs. 5.4% prior for the Y/Y and 0.4% vs. 0.5% prior
for the M/M one.

Thursday: Given the
recent comments by ECB members and the hot inflation data, the ECB is widely
expected to hike by 50 bps bringing the deposit rate to 3.0%. The market
expects the ECB to reach 4.0% for their terminal rate, although this can change
easily if inflation remains stubbornly high. No changes are expected to the
balance sheet rundown of 15bln/month in APP reinvestments.

Given the
high focus on the labour market, as it was made clear by the market reaction
last week to a miss in the data, jobless claims will also be a key report this
week on a forward looking basis. Initial Claims are expected at 205K vs. 211K
prior and Continuing Claims are expected at 1659K vs. 1718K prior. Given the
context, a notably higher than expected number should be good for the bond
market with yields lower, and bad for the USD and commodities. For the stock
market the reaction function is trickier at the moment. Generally, when
unemployment starts to rise as a consequence of a recession, it’s bad for the
market at the initial stages, no matter if you expect the Fed to cut rates
next.