This week is packed with moving parts, making it no surprise that risk has been scaled back as we await key data releases, including NFP, CPI, PMI, and retail sales from the US. Meanwhile, PMIs and various central banks take the spotlight in Europe—along with the BOJ. Although Powell downplayed the reliability of US data and hinted at the possibility of soft NFP figures being overstated by approximately 60k, the outcomes are expected to trigger volatile market reactions. Economists are likely to provide caveats regardless of the results, further complicating the interpretation of these events.

Anticipation surrounding this week’s developments has been mounting. It seems prudent to analyze each US data release individually, reassess once the dust settles, and avoid jumping to conclusions. Broadly speaking, the bias leans toward a short USD position, supported by Powell’s less hawkish tone on Wednesday and the Fed’s balance sheet expansion, which should generally benefit risk assets. However, with equities under pressure, Friday’s market behavior suggested otherwise.

Adding to the mix, Lagarde’s recent remarks that the "ECB may lift growth outlook again" lend support to a long position on the euro. Encouragingly, there was significant real money demand for EUR on Friday. On the other hand, NOK emerged as a notable underperformer. Although flows weren’t particularly large, short hedge funds sold NOK, and the recent movement in yields against NOK likely explains the weakness. This decline in NOK also lifted SEK slightly, with EUR/SEK trading above 11.9000. Despite this, I maintain EUR/SEK shorts, driven by fiscal differentiation, stronger domestic data, and regional procyclical support, aligning well with the broader USD weakness bias. I will provide further analysis on various central banks later this week.