One of the best performing currencies today was the euro, which rose to its strongest level in 5 weeks against the U.S. dollar. There were a number of factors behind the move. To start, U.S. equities rebounded strongly today with the Dow rising 669 points and the improvement in risk appetite was exceptionally positive for the single currency. Secondly, ECB member Weidmann said ECB policy normalization should start soon and expectations for a mid-year rate hike in 2019 is not unrealistic. Third, investors are still weary about buying U.S. dollars and preferred to express their risk tolerance through other currencies. Fourth, French Q4 GDP was revised up to 0.7% and last but certainly not least, on a technical basis, EUR/USD finally broke out of a long consolidation and is eyeing 1.25. We think it will get there even if tomorrow’s Eurozone confidence numbers fall short of expectations.

For the first time in 3 trading days, the U.S. dollar rebounded against the Japanese Yen. In fact, all of the major currencies traded higher on the back of the strong recovery in U.S. stocks. Investors were relieved that China is eager to negotiate with the U.S., opting first to respond with less aggressive retaliation measures. Some traders may find it tempting to pick a bottom in USD/JPY, particularly with the pair hovering near 105, which is an important level but it is far too early to declare victory as the pair could easily slip to 104. There’s a few reasons why now is not the time to buy USD/JPY.

First, we are just a few days away from Japan’s fiscal year end so there could still be last minute repatriation. Second, according to a recent opinion poll about half of Japanese voters believe that Prime Minister Abe should quit over a land sale scandal. This is Abe’s biggest political crisis since taking office again on December 2012 and it remains to be seen whether he can survive this political crisis especially after being snubbed by the U.S. on tariff exemptions. Third, on technical basis, USD/JPY is still in a downtrend and that doesn’t change until we see a move above 106.20. With all of this in mind, USD/JPY could get there if the Dow breaks back above 24,200. Other Affect is sweden sek that was down against Euro.

The Federal Reserve failed to live up to expectations last week but a number of Federal Reserve officials are speaking this week and investors will be watching their comments carefully to see if the voting members of the FOMC maintain their ultra-hawkish views. Dudley did not touch on monetary policy but Mester and Quarles who speak later today and Bostic on Tuesday could share their views. Keep watching the headlines for any politically charged developments or decisions from Washington.