European currencies in the lead

As you may have noticed, the European stock market indices (CAC40, FTSE 100, IBEX, SMI) are outperforming their global counterparts and first and foremost the flagship index of the U.S. stock market, the S&P 500. But did you know that their currencies are doing the same? Let's take advantage of this early week to take a look at the horizon.

We are in a very special period. Since last October, the European indices have been on a roll and some of them have been setting new all-time highs while others are lamentably close to their low points of 2022. We have already mentioned several times the (relative) decline of the dollar for structural reasons linked to its disputed status as a foreign exchange reserve. There are other, more short-term reasons, in particular the anticipation of a future change in US monetary policy, which will automatically make the dollar less attractive from a carry trade perspective.

That said, more than the dollar's lack of interest, two major forces are currently prevailing: the strength of European currencies (EUR, CHF, GBP) and the weakness of commodity currencies (CAD, NZD, AUD).

Let's start directly with the latter. It seems that for the time being, traders do not believe in the recovery of the Chinese economy despite a stronger than expected GDP increase in the first quarter. The bottom line is that the Aussie and the Kiwi are losing more than 2% over the week even if technically only the break of the 0.6580 and 0.6100 will restart the bearish momentum. For its part, the CAD has indeed suffered some clearing under the resistance at 0.7530 with a target of 0.7271.

On the European currency side, the dynamics are radically different. The euro, and by extension the Swiss franc, are benefiting from rate hikes by their central banks (ECB and SNB). As for the pound, it is also benefiting from the improvement in public finances across the Atlantic. For the record, Standard & Poor's has just raised the outlook for Britain's credit rating from "negative" to "stable". Technically, the cable remains well oriented above 1.2373 max 1.2230.

To finish this overview, we note that the USDNOK is recording a nice weekly progression and is currently trying to break through the upper limit of its horizontal channel at 10.5575/5875 with 10.75 and then 11.00 in sight. Finally, the NOKSEK has changed little and is still sailing near its important support at 10.16.