Currency Market Trend Analysis: January 8, 2018

By The Numbers: Your FX Week In Review

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Market Analysis

CAD/USD - Canadian Dollar

CAD/USD opened last week at 0.7953 and closed at 0.8063 – appreciating by 1.38% as West Texas Intermediate (WTI) broke $61.63, and the unemployment rate dropped unexpectedly.

The CAD gained support early in the week from WTI, which skyrocketed up to $61.63 despite a return to full production in Libya. This increase was attributed to populist protest in Iran, stemming from dissatisfaction with the currency administration and economic conditions – particularly inflation of consumer goods.

Canadian unemployment surprised to the up-side, dropping to 5.7% from 5.9%. These data were partially balanced by the Ivey PMI (decline from 63.0 to 60.0) and trade balance (-2.5bn vs. expectation of -1.1bn). The change in trade balance was due to large increases in both imports and exports.

In response to lowered unemployment, markets have increased their expectations for a Jan rate hike, (now approaching 2/3). This % may be over-zealous – the BoC has emphasized that they will be exercising a data-based approach to rate hikes. For this reason, they may wait until March to hike rates, at which point the economic outlook will be more defined, and NAFTA-related risks will be abated.

This will be a data-light week for the CAD, leaving US data and politics as the main impetus for market movements.

1. BoC Business Outlook Survey: Monday, January 8^th        

2. Housing Starts (Dec): Tuesday, January 9^th            

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GBP/USD - British Pound

GBP/USD opened last week at 1.3503 and closed at 1.3567 – appreciating by 0.47% as relatively weak UK data was overshadowed by uncertainty regarding the Fed 2018 rate hikes.

The week began with political upset, as Theresa May decided to initiate the third reshuffling of the UK government since her election. This comes after the resignation of Damien Green as First Secretary of State – due to misleading statements regarding pornography found on his computer.

UK data came in mixed, if tilted to the down-side this past week. Halifax, the UK’s largest mortgage lender, reported that house prices grew 2.7% QoQ, a far cry from last year’s 6.5%. This disappointment was compounded by UK manufacturing PMI, which feel more than expected. Subsequent losses were tempered by the UK services PMI, which came in at 54.2 against an expectation of 53.0.

This week’s GDP and production data will likely be the main drivers for the GBP/USD. UK politics will continue to play a limited role, and will likely gain momentum as Brexit stage two negotiations accelerate.

1. BRC Like-for-Like Sales (Dec): Tuesday, January 9^th        

2. Industrial/Manufacturing Production: Wednesday, January 10^th

3. NIESR GDP Estimate (Dec): Wednesday, January 10^th

4. BoE Credit Conditions Survey: Thursday, January 11^th  

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EUR/USD - European Central Bank Euro

EUR/USD opened last week at 1.1999 and closed at 1.2029 – appreciating by 0.25% as eurozone (EZ) data continues to come in strong, and US core inflation undershot the target.

Germany’s unemployment dropped to a record low of 5.5%, while Ireland’s Q3 GDP accelerated to 10.5%, and Portugal’s 2017 GDP growth estimate came in at 2.6%. These data show continued EZ strength, at a time when markets are questioning the US dot plot’s indication of three rate hikes in 2018. US core inflation has continued to undershoot the 2% target, leading some to expect two rate hikes for 2018. US rate hike prospects have also been dampened by Trump’s slow legislative success, and concerns that low inflation is not just linked to USD depreciation.

The Euro has been the best performer of the G10 currencies this year, appreciating by more than 14% against the USD.

This will be a data-heavy week for the common currency, with the release of multiple confidence and sentiment indicators. Movements will likely depend upon how this data stacks up against USD releases.

1. Services Sentiment (Dec): Monday, January 8^th        

2. Consumer/Industrial Confidence (Dec): Monday, January 8^th       

3. Economic Sentiment Indicator (Dec): Monday, January 8^th       

4. Business Climate (Dec): Monday, January 8^th       

5. Non-Monetary Policy’s ECB Meeting: Tuesday, January 9^th      

6. Unemployment Rate (Nov): Tuesday, January 9^th      

7. ECB Monetary Policy Meeting Accounts: Thursday, January 11^th            

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About the Author

 Collin McAliley - Business Operations 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? Request A Call