Bull markets rarely end in collapse and the US dollar proved that on Tuesday as it roared back to life. The Australian dollar was the top performer while the pound lagged. Japanese retail sales are up next but the big story in the day ahead will be Article 50. After closing both EUR/CAD and EUR/AUD trades at a profit, one of pairs will be re-opened later ahead of the Asia Wednesday session.
We wrote yesterday about how the US dollar was at a crossroads. On Monday, it tumbled early but instead of continuing to wilt, it bounced and that underscored the indecision in the market.
Today, strong economic data and more signs of renewed political resolve gave the dollar a lift. As the gains mounted, the US dollar erased all of Monday's losses to leave it virtually flat on the week.
What had looked like a breakout in EUR/USD is now a trade wracked with questions.
What's clear is that the US dollar won't seriously stumble so long as economic data is improving. On Tuesday, US consumer confidence jumped to 125.6 compared to 114.0 expected; that's the best in 17 years. The Richmond Fed also hit the best since 2010.
The Fed's Fischer made an appearance but offered little we didn't know. He said two more hikes this year was his baseline and that the risks were balanced.
Two things will keep markets off balance in the days ahead. The first is looming quarter end and Japanese fiscal year end. The second is the UK announcement due on Wednesday.
In theory, the announcement is 100% expected and it should be fully priced in. May will likely make the announcement in parliament at noon and the letter will be delivered to Donald Tusk 30 minutes later.
The danger is that GBP flows accelerate after the announcement. In particular, the net cable position is at the most-short on record and that leaves the pair vulnerable to a squeeze.
Before May takes the spotlight, the economic data to watch in Asia-Pacific trading comes at 2350GMT when Japanese retail is released. The BOJ is showing no signs of easing off the gas pedal but a reading better than the +0.3% m/m expected would be a small step in that direction (albeit still not a JPY mover).