Hope that the ceasefire will lead to the end of the Middle East war fanned risk appetites in recent days. Equities rallied broadly. May WTI and June Brent fell by nearly 11.5%. The dollar fell against all the G10 currencies, the Antipodeans and Scandis, which seem the most sensitive to growth prospects and the risk environment. The JP Morgan Emerging Market Currency Index rose by a little more than 2%, to post its best week since March 2018.
Negotiations will take place over the weekend, and market participants are hopeful that this can lead to a more sustained end to hostilities. Of course, it is complicated by the lack of trust and the Israel-Lebanon conflict. Ceasefires are hardly immaculate. Meanwhile, we may be on the cusp of two other watersheds. First, there have been encouraging reports about a potential agreement between Russia and Ukraine. Second, Hungary’s Viktor Orban is the long-serving prime minister in the EU. He has served for the past 16 years and had previous term between 1998 and 2002. Polls suggest he could lose the popular vote on April 12.
US
Drivers: The two-week ceasefire in Middle East war reset the dollar and interest rate expectations. The dollar rallied during the war and was sold on the ceasefire. The derivatives market sees the Federal Reserve as the most dovish of the major central banks and the odds of a cut this year have risen to around 33% from briefly discounting a small chance of a hike.
Data: The US has a full slate of high frequency reports in the coming days. We suspect most will have limited impact on the markets. Yet given the desire for real time insight into the impact of the war, the Empire State survey and the Philadelphia Fed's survey may be the most important. The Fed's Beige Book and its anecdotal reports may also serve this purpose, though practically no one doubts that the FOMC will stand pat when it meets later this month.
Prices: The Dollar Index gapped lower in the middle of last week. That gap, found between about 99.18 and 99.51 is important from a technical perspective. It found support around the 200-day moving average, found near 98.50. The momentum indicators have turned down, and the five-day moving average has fallen below the 20-day moving average for the first time since February 18. We look for the 97.50 area in the coming days.
EMU
Drivers: The euro bottomed in the middle of March, but the upside seemed stalled until the ceasefire was announced. Expectations for ECB rate hikes this year were pared from at least three hikes to two with about 40% chance of a third. The US two-year premium over Germany was around 138 bp before the war and it collapsed to about 108 bp as President Trump threatened to destroy Iran. The ceasefire announcement saw it recover to almost 130 bp and it finished last week near 123 bp.
Data: With several large members already reporting national figures for February industrial output (Germany 0.5%, France -0.7%, Spain 0.2%) the aggregate figure will likely not draw much attention. The same could said about the aggregate trade and current account figures. The median forecast in Bloomberg's survey of 0.3% growth in Q1 and Q2 this year seems a little exaggerated. Last month ECB projections saw growth at 0.9% this year and the current account surplus 1.7% of GDP (1.9% in 2025), with a larger budget deficit (3.4% of GDP vs. 3.0% in 2025).
Prices: The euro appears to have forged a solid base in the second half of March. The consolidation of the past couple of sessions looks constructive. The five-day moving average is above the 20-day moving average and the momentum indicators give the single currency scope for additional near-term gains. Nearby resistance is seen around $1.1745-50, but we suspect there may be initial potential toward $1.1825, the high from the last day in February, before the war began. Potential for a breakthrough in negotiations between Russia and Ukraine and a defeat of Hungary's Orban would seem supportive of the euro.
PRC
Drivers: Beijing continues to endorse the appreciation of the yuan. Last week, the PBOC set the dollar's reference rate at its lowest level in three years. The fix was lowered last week by about 0.30%, the largest weekly decline in two months.
Data: By the end of the week ahead, we will have been told Beijing's estimate of Q1 GDP and the macro details for March, including trade, retail sales, industrial production, investment, and house prices. The median forecast in Bloomberg's survey is that the economy grew at a slightly faster pace in Q1 than it did in Q4 25 (1.2%).
Prices: Ahead of the weekend, the dollar posted its lowest close against the offshore yuan since March 2023. A break of CNH6.8200 could signal a move toward CNH6.80 but there is potential toward the 20203 low, which was slightly below CNH6.70. It is difficult to know the intent of Chinese officials, but they have embraced the gradual appreciation of the yuan. We suspect a move to CNY6.60-CNY6.70 may be acceptable.
Japan
Drivers: The 30-day correlation between changes in the dollar-yen exchange rate and the 10-year US yield continues to hover above 0.60, the highest since last September. It bottomed in early February a little below 0.15, which was the lowest since last May. The 30-day correlation of changes in the dollar-yen exchange rate and the Dollar Index is a little above 0.75. At the end of February was near 0.73 but fell below 60 in mid-March. It has not been above 0.80 since last October.
Data: After a 4.3% month-over-month surge in Japan's industrial production in January, a monster of a gain, the largest since June 2022, it slowed by almost half in February. It is subject to revision in the week ahead. While the Japanese economy seems sufficiently strong and price pressures sufficiently persistent for the Bank of Japan to hike later this month, one more worrisome development has been the weakness in private sector machinery orders (capex). They fell by 5.5% in January. The February report is due on April 15.
Prices: The market tested the JPY160 level early last week and the news of the ceasefire saw the dollar come off to support near JPY158.00. The market does not appear to have given up on probing for the pain threshold of Japanese officials, though the daily momentum indicators are falling and the five-day moving average in threatening to fall through the 20-day moving average for the first time since February 20. That said, a convincing break of JPY157.50 would suggest a high is in place.
UK
Drivers: Sterling continues to trade inversely to the Dollar Index. The 30-day rolling correlation of the changes of the two instruments is almost -0.87. It has not been much more extreme than this since early Q4 25. The correlation between the exchange rate and changes in two-year US and UK yields stands around -0.35 and -0.10, respectively. Meanwhile, the correlation between changes in sterling and the US S&P 500 (risk proxy) is a little below 0.57. This is the upper end of the range since late 2022.
Data: At the end of the week, the UK reports February GDP and details. Even though the monthly figures do not translate into quarterly reports as one might intuitively expect, the market is often sensitive to them. January GDP unexpectedly stagnated (median forecast in Bloomberg's survey was 0.2%). Another disappointment would likely spark sterling sales and a reconsideration of the likely trajectory of BOE. The central bank projects 0.9% growth this year and the Office for Budget Responsibility forecasts 1.1%. This may also prove to be optimistic.
Prices: Ahead of the weekend, sterling settled at its best level since the war began. Yet it did not make it above the intraday March highs (~$1.3480-85). The momentum indicators are constructive, and the five-day moving average pushed above the 20-day moving average. Above the March highs is the $1.3515 area, which is the halfway mark of the losses since the January 27 four-year high was reached (~$1.3670). A note of caution is that the upper Bollinger Band is slightly below $1.3500.
Canada
Drivers: Around mid-March, the 30-day correlation of changes in the US dollar-Canadian dollar exchange rate and the Dollar Index rose above 0.85, its highest since mid-2024. It is now near 0.65, which is still at the upper end of last year's range. The correlation between changes in the exchange rate and the S&P 500 is around -0.28, while the correlation with changes in the US two-year yield is slightly lower, though near the highs since last October.
Data: Canada housing data does not capture the market's attention, but the international transactions may a somewhat different matter. After a weak H1 25, foreign demand for Canada's stocks and bonds picked up in H2 25 and continued into January. In fact, January's portfolio capital inflows were more than twice the Q4 25 average. On the other hand, the trade balance may be deteriorating. The Jan-Feb deficit of almost C$10 bln is among the largest Canada has ever recorded and the rolling 12-month averaged shortfall of C$3.675 bln is a record.
Prices: Before the weekend, and despite milquetoast jobs report that saw full time jobs were lost for the second consecutive month, the Canadian dollar rose to its best level in nearly two and a half weeks. The greenback was pushed below CAD1.38 and settled below the 20- and 200-day moving averages, which converged around CAD1.3820. The momentum indicators have turned down. The next target is around CAD1.3750, and then possibly CAD1.37.
Australia
Drivers: Changes in the Australian dollar and the Dollar Index are the most inversely correlated (30-days) since last October (~-0.78). The correlation between the exchange rate and the S&P 600 is around 0.64, which is off the peak seen last month near 0.73. Last year's high was closer to 0.87. The Aussie's correlation with gold peaked in February a little above 0.80. It fell to almost 0.30 in March before recovering to almost 0.50 now.
Data: At the end of the week, Australia reports March jobs data. In February, the almost 49k increase in employment was fueled exclusively by part-time positions. There were 30.5k fewer full-time jobs. However, that came after two solid months in which full-time posts rose by nearly 110k. The unemployment rate is 4.3%. It has spent only one month higher since the end of 2021 and that was the anomalous jump to 4.5% last September and a return to 4.3% in October. The Reserve Bank of Australia meets next on May 5. The futures market has about a 65% chance of a hike. We wonder if three hikes in a row are a bit aggressive given the hornet's nest that has been opened by the Middle East war.
Prices: The Australian dollar is knocking on the $0.7100 area, which it last traded above on March 19. Following the second rate hike of the year, the Aussie reached slightly beyond $0.7185 on March 13, its best level since mid-2022. The momentum indicators have turned higher from oversold, and the five-day moving average crossed back above the 20-day moving average last week, Initial resistance above $0.7100 is seen near $0.7125.
Mexico
Drivers: The Mexican peso is sensitive to the US dollar's broad direction. The rolling 30-day correlation of changes in the USD-peso exchange rate and the Dollar Index is above 0.75 for the first time since last October, which also marked the high in 2025. Yet the peso is also sensitive to the risk environment. Using the S&P 500 as the proxy, the USD-peso exchange rate is inversely correlated to changes in the S&P 500 by almost 0.80, the most extreme since July 2020. The correlation between changes in the exchange rate and US two-year yields is near 0.45, the highest since last September.
Data: While keeping in mind the large informal economy in Mexico, which accounts for a little over half of the workforce according to some estimates, nominal wage increases have been trending lower. The March figures are due this week. The rolling six-month moving average was slightly above 6.35% in February, the smallest since Q1 22.
Prices: The Mexican peso appreciated by about 3.3% against the US dollar last week. That is its best weekly showing since September 2024.The dollar settled near MXN17.2270 on the eve of the Middle East war and peaked in late March around MXN18.1645, slightly shy of the 200-day moving average. At the end of last week, it tested the MXN17.25 area, the lowest since March 2.The momentum indicators are falling and the five-day moving average fell below the 20-day moving average last week for the first time since early March. However, the move has taken place so quickly that the greenback has settled for the past three sessions below the lower Bollinger Band (~MXN17.36 before the weekend).
Reviewed by Marc Chandler
on
April 11, 2026
Rating:
