There are three main talking points today. The first is the war. While it continues to rage, more oil is reportedly moving through the Strait of Hormuz and pipelines that bypass the choke point entirely. President Trump is again holding out the possibility that the war ends shortly. Second, Japanese Prime Minister Takaichi is in Washington today. To be a fly on the wall as she explains how the US imposed constitution hamstrings its ability to commit escort ships, despite her and her predecessor seeking to liberalize the understanding of the restraints on the use of force. Third is the Bank of Canada and the Federal Reserve meetings. Neither central bank will change policy. The Federal Reserve will update its economic projections. Amid a wide dispersion of views, the median dot was for one rate cut this year. In the fog of war, there cannot be much confidence in the economic projections, but it is possible the median dot pushes out the cut into next year. Weak economic data before the war may temper the Bank of Canada’s recognition of a potential inflation shock.
The US dollar is mostly a little firmer against the G10 currencies. Turnover is quiet. Stocks and bonds are rising. May WTI is recovering from a three-day low near $91.50 today and is back above $94 ahead of the start of the North American session.
Prices
G10
• The euro traded firmly yesterday. The three-day high was seen in North America near $1.1550. This allowed it to recoup about half of what it lost since last week’s high (~$1.1665). The euro is trading quietly but firmly today. It is mostly trading between $1.1520 and $1.1550. The next retracement is about $1.1570. But ahead of the FOMC meeting later concludes today, the short-term market may look for euro upticks to sell after a two-day 1.3-cent bounce.
• The dollar recorded a four-day low today against the Japanese yen, near JPY158.55 today, slipping through yesterday’s low, slightly above JPY158.70. The JPY158.50 area is the halfway mark of the dollar’s advance since the March 10 low near JPY157.30. The dollar recovered and poked above JPY159.00 in early European turnover, where it was greeted by sellers. Options for $1.2 bn at JPY159 expire today. The next retracement target is around JPY158.20. So far, it is the third session of lower highs and lower lows. Japanese Prime Minister Takaichi is in Washington today. It may be a tense meeting after given the reluctance of Japan to send escort ships to the Middle East. She will likely explain the constitutional limits imposed by the US after WWII, which she and her predecessor have helped modify.
• Sterling traded firmly yesterday but was not able to rise above last Friday’s high (~$1.3370) as the euro managed. Today, it rose to $1.3375 on limited follow-through and is little changed as the North American session begins. Nearby support is in the $1.3320-40 area. It, too, has recovered about half of its losses from last week’s high (~$1.3485). The next technical hurdle is in the $1.3380-$1.3415 band.
• The US dollar is coiling against the Canadian dollar. It spent yesterday inside Monday’s range which was inside last Friday’s range (~CAD1.3655-CAD1.3740). It has so far today been confined to yesterday’s range, trading quietly between almost CAD1.3685 and nearly CAD1.3715. There are around $615 mln in options struck at CAD1.3675 that expire today shortly after the outcome of the Bank of Canada meeting. The coiling pattern played out as a reversal pattern earlier this month, but it can also be a continuation pattern. Respect the price action.
• The Australian dollar reached almost $0.7120, a three-day yesterday after the central bank hiked rates for the second time this year. Follow-through buying today has thus far been limited to a few hundredths of a cent. Options about A$930 mln at $0.7100 expire today. There is little on the charts to stand in the way of the multiyear high recorded earlier this month, slightly shy of $0.7190 and $0.7200 of psychological importance.
EM
• The greenback was sold to a four-day low yesterday against the Mexican peso, near MXN17.6120 and has drawn closer to MXN17.60 today. The US dollar has surrendered about half of its gains since the war began. Support may be in the MXN17.50-55 area.
• The dollar consolidated with a softer bias against the Chinese yuan yesterday. It spent most of the North American session below Monday’s low (~CNH6.8860). It has been sold thro9ugh last Friday’s low (~CNH6.8780) today and reached almost CNH6.8720. Last week’s low was close to CNH6.86. The PBOC set the dollar’s fix at CNY6.8940 today (CNH6.8961 yesterday).
• The US dollar rose to a record high against the Indian rupee, around INR92.6360. Although India has around $716 bln of reserves, which includes gold, some observers are concerned that it is not sufficient, covering less than nine months of imports, the least in three years. The central bank operates in the forward market, less transparently, and as of the end of January, had nearly $68 bln in dollar sales.
Other Markets
• Equities are advancing today. Asia Pacific bourse rallied strongly, led by a 5% rally in South Korea, and a nearly 3% rally in the Nikkei. Taiwan’s Taiex gained 1.5%. Europe’s Stoxx 600 is extending its rally for the third consecutive session, the longest such streak since mid-February. US index futures are a little more than 0.5% higher.
• Benchmark 10-year yields are pulling back. The 10-year JGB yield fell over five basis points to 2.20%. European rates are mostly 3-4 basis points lower, and, near 4.18%, the 10-uear US Treasury yield is a couple basis points lower.
• Gold continues to straddle the $5000 level for the third consecutive session, but is a bit heavier. Silver slipped to almost $78 but is knocking near $79.50 in Europe.
• May WTI fell to a three-day low near $91.50 earlier today and is recovered above $94. More oil is reportedly moving through the Strait of Hormuz, and President Trump continues to hold out the possibility that the war ends shortly.
Data
• The US reports February PPI and January factory orders, which have been rendered largely moot by the three-and-a-half-week-old war. The focus is squarely on the outcome of the Federal Reserve meeting. There is little doubt that it stands pat. While one dissent (Miran) is widely expected, there is some speculation that Governor Waller may join. Some have also suggested that Governor Bowman may also dissent. It does not seem particularly likely, and while possible, it is more a curiosity than a market force. While Chair Powell will likely explain that the updated Summary of Economic Projections have a narrow confidence band, and emphasize the uncertainty the war, the dot plot, which the median anticipated one cut in the December 2025 iteration may see it pushed out to 2027.
• Ahead of the Bank of Canada meeting today, StatsCan will report January portfolio flows. Recall that last year, foreign investors bought about C$116.4 bln of Canadian stocks and bonds, down from around C$193 bln in 2024. Still, the portfolio flows more than covered Canada’s current account deficit. Last year, Canada current account deficit increased to C$30.4 bln from about C$13.1 bln in 2024. There is practically as little chance that the Bank of Canada changes its 2.25% target rate as a Fed move. Before the war began, the swaps market discounted about a 45% chance of a Canadian rate cut this year. The pendulum of market sentiment swung sharply, and at its peak last week, one hike was fully discounted and around a 70% chance of a second hike. Cooler heads have prevailed in recent days, and the swap market has almost given up on the second hike. It still appears exaggerated.
• Japan reported a JPY57.3bln trade surplus in February. True to powerful seasonal patterns, the balance improved from the JPY1.16 trillion deficit in January. Recall that last February, Japan reported a trade surplus of JPY559.2 bln. The 12-month moving average of Japan’s trade balance has been in deficit since late 2021.
Reviewed by Marc Chandler
on
March 18, 2026
Rating:
