The euro zone's trade balance was in deficit for the third consecutive month

• The yen extended its decline on Monday and the euro and sterling came under pressure
• The British pound rose against the euro but was flat against the U.S. dollar on Friday
• Canadian retail sales bounced back beating expectations as shoppers ventured out to car dealerships

Forex market

The yen extended its decline today and the euro and sterling came under pressure, with investors awaiting Federal Reserve chair Jerome Powell's remarks later in the day and other central bank policymakers this week for monetary policy clues. 

The dollar climbed slightly on the yen to as much as 119.3 yen challenging the six-year peak of 119.39 touched on Friday. The dollar finished last week 1.6% higher versus the Japanese currency. Analysts said they thought moves in the pair could slow this week, but they predict the dollar will climb further on the yen in the coming months as the gap between the U.S. and Japanese interest rates widens.

Economic Calendar

Japan's inflation dynamic is very different from that experienced in other major economies we monitor, As a result, an exit from the ultra-easy monetary policy by the Bank of Japan remains a long way off in our view. In contrast, the U.S. central bank raised its key interest rate by 25 basis points last week for the first time since the pandemic. 

Traders' focus is now firmly on the speed and size of future rate hikes and the height of their eventual peak, as policymakers try to curb soaring inflation. A series of speeches by Fed policymakers this week, kicked off by Powell today, could provide some clues. At least one Fed speaker is due each day this week and Powell himself making another appearance on Wednesday. Markets will be watching to see the attitude of more dovish Fed policymakers, if they should sound hawkish it would reinforce expectations of more aggressive rate rises early in the Fed's path to higher rates. 

Trade Zone Week Ahead with Boris 21st – 25th March

Markets anticipate further rate increases at the Fed's subsequent meetings, with pricing indicating nearly a 90% chance of at least 75 basis points of increases across the Fed's May and June meetings. Such high expectations helped the dollar climb steadily in the early part of this year, but with several Fed increases already priced in, it could struggle to gain further traction. 

Given already-hawkish market expectations of Fed tightening, it is hard to foresee USD strength persisting beyond the near term. The dollar index, which measures the greenback against six peers, was a whisker firmer at 98.335. The euro was at $1.1038, 0.17% lower, and sterling was at $1.3156 off 0.16% with the future direction of both dependent on the war in Ukraine, which has hurt expectations of European economic growth. In the short term, speeches this week by several policymakers at the European Central Bank, including president Christine Lagarde, could also play a role.

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Euro-EUR

The single currency traded lower as the euro zone's trade balance was in deficit for the third consecutive month in January as surging energy prices led to a sharp increase in the value of imports, even before the Russian invasion of Ukraine prompted further price spikes. Germany's trade surplus fell by 78% from January 2021, France's deficit deepened. Overall, the EUR/USD traded with a low of 1.1001 and a high of 1.1117 before closing the day around 1.1049 in the New York session.

Yen-JPY

The Japanese Yen extended its decline today and the euro and sterling came under pressure, with investors awaiting Federal Reserve chair Jerome Powell's remarks later in the day and other central bank policymakers this week for monetary policy clues. The dollar finished last week 1.6% higher versus the Japanese currency. Overall, the USD/JPY traded with a low of 118.45 and a high of 119.38 before closing the day around 119.13 in the U.S session.

British Pound-GBP

The British Pound rose against the euro but was flat against the U.S. dollar on Friday, a day after the Bank of England increased its interest rate for the third consecutive meeting but softened its language over future tightening plans. Sterling was little changed against the dollar at $1.3147 but was still on track for its first positive week in four. Overall, the GBP/USD traded with a low of 1.3108 and a high of 1.3195 before closing the day at 1.3177 in the New York session.

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Canadian Dollar-CAD

The Canadian Dollar gained as retail sales bounced back in January, beating expectations, as shoppers ventured out to car dealerships and home improvement shops, official data showed Friday, though February retail sales likely fell. Retail sales increased 3.2% to C$58.94 billion ($46.7 billion) in January, led by higher sales of motor vehicles and parts. Overall, USD/CAD traded with a low of 1.2586 and a high of 1.2644 before closing the day at 1.2597 in the New York session.

Australian Dollar-AUD

The Australian Dollar has surged higher on the back of positive risk sentiment to start the week. Commodity markets continue to recover from the rout seen at the start of last week. The underlying fundamentals remain strong for the Aussie, although the RBA are not likely to be making a move on rates anytime soon. The domestic jobs data last week was a solid beat. Overall, AUD/USD traded with a low of 0.7358 and a high of 0.7416 before closing the day at 0.7410 in the New York session.

Smart Trading Tools

​Euro-Yen EUR/JPY

EUR/JPY is trading above 14, 50 and 100 days moving average. Fast stochastic is giving a bullish tone and MACD is also issuing a bullish stance. The Relative Strength Index is above 61 and lies above the neutral zone. In general, the pair has gained 0.10%.

Sterling-Yen GBP/JPY

Currently, GBP/JPY is trading above 14, 50 and 100 days moving average. Fast stochastic is issuing a bullish tone and MACD is also indicating a bullish stance. The Relative Strength Index is above 60 reading and lies above the neutral zone. On the whole, the pair has gained 0.72%.

Aussie-Yen AUD/JPY

Currently, the cross is trading above 14, 50 and 100 days moving average. Fast stochastic is giving a bullish tone and MACD is also indicating a bullish stance. The Relative Strength Index is above 76 reading and lies above the neutral region. In general, the pair has gained 0.97%.

Euro-Sterling EUR/GBP

This cross is currently trading above 14, 50 and below 100 days moving average. Fast stochastic is indicating a bullish tone and MACD is also issuing a bullish signal. The Relative Strength Index is above 53 and lies below the neutral region. Overall, the pair has lost 0.60%.

Sterling-Swiss GBP/CHF

This cross is trading below 14, 50 and 100 days moving average. Fast stochastic is issuing a bearish stance and MACD is also indicating a bearish tone. The Relative Strength Index is above 45 and lies below the neutral region. In general, the pair has lost 0.28%.

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