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Monday, October 30, 2017

Currency Market Trend Analysis: October 30, 2017

Currency Market Trend Analysis: October 30, 2017
Source: CXI International Payments Team

 

 

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By The Numbers: Your FX Week In Review

 
 
Foreign currency value versus USD is decreasing
 
Foreign currency value versus USD is increasing

*Indicators show the percent change over the past week.

Currency Calendar

Date Releases / Holiday  
October 30, 2017 Consumer Credit (Sep) Germany
October 30, 2017 Mortgage Approvals (Sep) UK
October 30, 2017 Economic Sentiment / Confidence (Oct) EMU
October 30, 2017 Core Personal Consumption Expenditure (Sep) USA
October 30, 2017 Dallas Fed Manufacturing Business Index (Oct) USA
October 31, 2017 CPI (Oct) EMU
October 31, 2017 Unemployment Rate (Sep) EMU
October 31, 2017 GDP (Aug) Canada
October 31, 2017 BoC Governor Poloz Speech Canada
November 1, 2017 All Saints’ Day EMU
November 1, 2017 ISM Manufacturing PMI (Oct) USA
November 1, 2017 Fed Monetary Policy Statement/Interest Rate Decision USA
November 2, 2017 Unemployment Rate (Oct) Germany
November 2, 2017 BoE Monetary Policy Statement/Interest Rate Decision UK
November 2, 2017 BoE’s Governor Carney Speech UK
November 3, 2017 Unemployment Rate (Oct) USA
November 3, 2017 Unemployment Rate (Oct) Canada

Upcoming bank holidays and impactful report releases for select countries.

Market Analysis

CAD/USD - Canadian Dollar

Opened last week at 0.7922 and closed at 0.7809.

The CAD tumbled 1.44% against the USD, as the BoC refrained from hiking rates, and yield curve spread differentials expanded in favor of the US. There was little expectation of rate hike at the BoC meeting this past week, but a softer tone curtailed expectations of a December rate hike, with some expectations now pushed out to April. Many expect a second rate-hike by July 2018. The CAD was further weighed down by softening oil prices. This news was balanced in-part by a positively revised GDP forecast, citing slack remaining in the labor market which could support growth without adding inflationary pressure.

BoC Governor Poloz stated that the bank is more preoccupied with downside risk to inflation and that is with risks stemming from NAFTA renegotiation. The CAD will likely push lower this coming week, as US tax reform fervor combines with downward-revised BoC rate-hike expectations. A surprise to the upside for Canadian GDP could break the current depreciation trend. 

1. GDP (Aug): Tuesday, October 31st    

2. BoC Governor Poloz Speech: Tuesday, October 31st   

3. Unemployment Rate (Oct): Friday, November 3rd    

 

GBP/USD - British Pound

Opened last week at 1.3185 and closed at 1.3129.

The sterling fell by 0.43% against the greenback last week, as Brexit talks continue to stall, and US data surprised to the up-side. Markets expect that the BoE will raise rates by 25 BP on the 2nd, though a Bloomberg survey predicts that 3/9 policy makers are likely to vote no. This may be contributing to the large differential between UK and US yields curves. Markets expect that a further rate hike will follow in August 2018.

PM May stated this past week that the UK will go it alone on trade following Brexit if no deal was reached before summer. This outcome is seeming increasingly likely, with the divorce payment, status of EU citizens in the UK, and management of the Irish border still up in the air.

UK data surprised to both sides this past week. Annualized growth came in at 1.5% against 1.4% expectation for Q3, while UK retail sales dropped from +24 in Sep, to -36 for Oct. This data may ease the BoE’s willingness to hike rates this year, putting further downwards pressure on the Sterling. 

1. Consumer Credit (Sep): Monday, October 30th

2. Mortgage Approvals (Sep): Monday, October 30th

3. BoE Monetary Policy Statement/Interest Rate Decision: Thursday, November 2nd

4. BoE's Governor Carney Speech: Thursday, November 2nd  

 

EUR/USD - European Central Bank Euro

Opened last week at 1.1785 and closed at 1.1609.

Over the past week, the Euro depreciated by 1.49% against the USD, as the ECB gave dovish guidance on QE. The ECB cut QE from 60bn Euro monthly, to 30bn Euro, and extended the program for 9 months. ECB President Draghi stated that rates will remain as they are until well past the horizon of the QE program. Many had expected a 6-month extension, creating losses for the Euro.

European political risk continues to mount, but has had relatively little influence on the common currency. This may be due to low foreign ownership of Spanish and Italian bonds. Spain enacted Article 155, and Catalonia responded by declaring independence. The Catalonian government has been stripped of title, and threatened with lengthy jail sentences. There is no immediate resolution in sight.

The Euro is likely to recover from its recent losses in the medium-term. Data continues to come in strong, and the Euro is undervalued by OECD and Big Mac PPP metrics. This week, eyes will be on the EMU CPI, as well as US manufacturing PMI’s. 

1. Retail Sales (Sep): Monday, October 30th      

2. Economic Sentiment (Oct, EMU): Monday, October 30th

3. Consumer Confidence (Oct, EMU): Monday, October 30th

4. Producer Confidence (Oct, EMU): Monday, October 30th

5. CPI (Oct, EMU): Tuesday, October 31st        

6. Unemployment Rate (Sep, EMU): Tuesday, October 31st        

7. All Saints’ Day (Italy, Spain, Portugal, France): Wednesday, November 1st

8. Unemployment Rate (Oct, Germany): Thursday, November 2nd                

 

Charts: TradingView

 

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About the Author

Collin McAliley

 Collin McAliley - Financial Analyst

Collin educates corporate clients on foreign currency markets lending industry best practices that enhance client knowledge and create specialized solutions that fit each business. Interested in having a custom international payments strategy or foreign exchange risk plan?

 

 


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