Markets Wait For Corporate Earnings | Forex News

After a long weekend participants seem to be easing into this trading week. We are seeing low volumes across FX and even less direction in markets overall. With light trading due to the holidays, currencies were relatively quiet last week.
However, risky asset-currencies, such as the AUD, NZD and GBP, outperformed against the USD (due to improved sentiment), while dovish comments from the ECB weighed on the EUR. Interestingly, we see that the tight correlation between equities and the EUR is steadily decoupling.
It has yet to be determined if this puzzling trend is a short term anomaly or part of a new trend. With the improvement of risk conditions carry trades have also performed well and we believe the AUDJPY trade to be one of the best plays near term.
With a big week in US economic data and corporate earning releases (specifically in the Banking sector) we understand why traders are sitting back and watching. Just after Wells Fargo’s positive earning release, GS also reported better than expected Q1 results. The reaction in equity markets has been slightly favorable (on relatively thin trading), but risk appetite remains fragile at best, with US futures giving risk a softer tone.
Recent changes to accounting rules to dilute mark-to-market should provide splashy headlines but results will be rightly questioned. Overall, any negative earning surprises, as releases gets into full gear, will shift sentiment back to safe havens like the USD and JPY. In China, the rate of decline in exports eased to 17.1% y/y in March (smaller fall than expected) and Imports recorded a drop of 25.1% y/y.
And in Singapore, the MAS announced a downward re-centring of the SGD policy band, while keeping a neutral policy stance moving forward and holding the width of the band. The shift amounts to a 1.5% move, which was less than the market had expected. The accompanying state noted “there is… no reason for any undue weakening of the Singapore dollar”, which implies that the shift was geared towards fighting deflationary pressures and not gaining an advantage in trade. The highlight of the trading day will be US March retail sales.
With solid gains from very depressed levels in the beginning of the year (rises of 1.7% and 0.5% over the previous two months), consensus appears to be factoring in the start of an upwards trend and false level optimism regarding the domestic economic climate. We remain cautious as there is a good deal of event risk this week, mostly stemming from financials and ECB, which will send traders quickly into “safe haven “ trades.