FX Week Ahead: Data Risks Collide with Tariff Volatility
Article published on March 31st, 2025 8:31PM UK Time
Table of Contents
- Overview and Market Context
- US Economic Data in Focus
- Tariff Risk and Market Positioning
- FX Market Technical and Tactical Views
- G8 Currency Highlights
- Additional Macro Events This Week
1. Overview and Market Context
The upcoming week presents a high-stakes setup for global FX markets, led by critical US macro data and the implementation of new tariff measures. Following a turbulent week marked by a sharp sell-off in equities and a bearish USD bias, investor attention now turns to the incoming economic prints and geopolitical developments. The focus is anchored on the ISM Manufacturing PMI (Wednesday), ISM Services PMI (Thursday), and Non-Farm Payrolls (Friday), while the anticipated April 2 “Liberation Day” auto tariffs loom as a key source of uncertainty.
Recent market action saw EUR/USD test and rebound from its 200-day moving average and implied volatility low, ending the week with upward momentum. Meanwhile, equity indices suffered broad losses—with the S&P 500 and Nasdaq breaking key technical support levels—and volatility metrics such as the VIX surged above 21. These shifts were catalyzed by a downward revision in University of Michigan consumer sentiment to 57, with deteriorating employment expectations and bipartisan pessimism amplifying recession concerns.
2. US Economic Data in Focus
This week’s US data will be instrumental in shaping near-term USD and risk sentiment. Key themes include:
- ISM Manufacturing PMI: The previous print narrowly held above 50, the expansion threshold, but subcomponents like employment and new orders weakened. Consensus expects a return to contraction.
- ISM Services PMI: The services index remains above 50, but a downside surprise into contractionary territory would reinforce stagflation concerns.
- Non-Farm Payrolls: Expectations sit at +140k, below the previous +151k. A print below +100k would likely weigh heavily on both USD and equities.
- Consumer Sentiment: Weak household outlooks and rising unemployment expectations suggest that businesses could follow with pessimistic prints.
These releases will serve as the cleanest macro catalysts for USD direction. Stronger-than-expected data may lift the dollar off heavily short COT positioning, while weak data could accelerate downside moves.
3. Tariff Risk and Market Positioning
Wednesday’s expected auto tariff announcement adds a layer of event risk. Goldman Sachs research notes that markets anticipate a high initial tariff headline but with a lengthy implementation phase and potential de-escalation. This contributes to subdued FX sensitivity, though the durability and breadth of tariffs remain pivotal.
Key themes from the latest GS Global FX Trader report include:
- A hawkish trade agenda is expected to be structurally USD positive, despite near-term headwinds.
- Tariff implementation delay and scope for exemptions reduce near-term market impact.
- Consumer surveys show minimal concern over trade deficits, pointing instead to sentiment around employment and household purchases.
- The decline in non-manufacturing surveys vs manufacturing implies that factors beyond tariffs (e.g., fiscal policy, labor markets) are weighing more heavily on sentiment.
4. FX Market Technical and Tactical Views
USD Index (DXY)
Resistance is seen near 104.50 and 105.50, aligning with December lows. Support stands at 103.30 and 102.60.
EUR/USD
Downside targets include 1.0780 (200-DMA), with upside potential toward 1.0950 on weak US data.
Equity Risk Indicators
- S&P 500: Support at 5400 and 5500; resistance near 5700 and the 200-DMA.
- Nasdaq: Support at 18,400; resistance at 19,800 and 200-DMA.
Positioning
USD net shorts remain elevated, increasing the potential for snapback rallies if data surprises positively. Equity markets are sensitive to both data and tariff newsflow.
5. G8 Currency Highlights
USD
Despite near-term downside risks, longer-term dollar strength remains plausible if tariffs prove sticky. Key technical levels and COT shorts make the dollar prone to sharp positioning squeezes.
JPY
Rising as a hedge against US equity downside, particularly as US growth outlook softens. Long JPY positions are favored, especially vs AUD. GS maintains a short AUD/JPY trade with target of 90.5.
GBP
Fiscal risks persist but are well recognized. The pound’s resilience to tariff concerns, especially vs EUR, continues. Correlations with equity markets also reinforce tactical stability.
CAD
Slight upside on tariff reprieve and infrastructure optimism, though risks from weak sentiment and potential growth disappointment remain. GS lowers USD/CAD target to 1.44.
EUR
Recent resilience attributed to fiscal developments and relative US weakness. CEE FX (CZK, HUF) vulnerable to downside on auto-related tariffs. HUF particularly exposed due to fiscal slippage and limited central bank support.
NOK & SEK
Best G10 performers YTD. NOK has industrial tailwinds from European defense spending, while SEK may underperform on Eurozone exposure.
AUD & NZD
Bearish tone sustained due to risk-off flows and soft commodity demand. GS continues to favor AUD/JPY shorts in risk aversion regimes.
CNY & NJA FX
CNY remains stable; anchors broader USD/Asia complex. Tariff exposure highest for Korea and Thailand, but strong services exports and capital inflows support INR. RBI rate cut expected.
6. Additional Macro Events This Week
- Germany Inflation: Key for EUR focus amid Eurozone pricing dynamics.
- RBA Meeting: Markets expect no change; focus on guidance.
- Canada Employment: Follows softening business sentiment; dovish implications for CAD.