EUR/USD optimism appears to be diminishing as market sentiment shifts. The DXY dollar index has climbed back above 104, influenced by a slight weakening of European currencies. Recent reports suggest that a potential U.S. government shutdown this weekend has been avoided, as Senate Democrats are set to pass the House bill. While this may provide a temporary lift for U.S. equities, broader economic indicators, including the impact of tariffs and the declining consumer and business sentiment, are likely to play a more significant role in determining market direction.
Today’s key focus will be the release of the March Consumer Sentiment index at 1500CET. Recent data indicates a sharp decline in sentiment, and a continuation of this trend could negatively impact the dollar. However, the more significant reaction might occur with the release of the February retail sales figures next Monday, where a robust rebound is anticipated after January’s decline. If this rebound fails to materialize, it could pose a downside risk for the dollar.
In the eurozone, optimism surrounding the euro is retreating. The FX options market has indicated a reduced appetite for EUR/USD, with a notable shift in the risk reversal from favoring euro calls to euro puts. This change in sentiment may be attributed partly to the potential threat of reciprocal trade tariffs set for early April and ongoing negotiations in the German Bundestag regarding constitutional reforms. Meanwhile, concerning Japan, the USD/JPY pair is experiencing a slight uptick as Japan’s largest labor union has agreed to a wage increase of 5.46%, slightly below expectations.
This agreement may indicate a continued cycle of wage growth and consumption, suggesting a potential underestimation of the likelihood of a Bank of Japan rate hike in May. In Poland, the National Bank of Poland’s recent press conference reflected a hawkish stance. Governor Adam Glapinski emphasized strong economic conditions and inflationary pressures, suggesting cuts are not imminent this year. The upcoming release of February inflation data is anticipated to show a slight increase, and markets will be watching closely for any signs of future rate adjustments.
Overall, the day’s trading activity may see the DXY maintaining a range of 103.70 to 104.30, while EUR/USD could oscillate between 1.0810 and 1.0880.