Currency Market Trend Analysis: December 4, 2017

By The Numbers: Your FX Week In Review

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Market Analysis

CAD/USD - Canadian Dollar

Opened last week at 0.7870 and closed at 0.7885.

The CAD appreciated against the USD by 0.19% this pat week, driven by a strong Canadian GDP print and employment figures. The CAD fell early in the week, with losses driven by falling oil prices. These losses were reversed upon the release of a stronger-than-expected jobs report (unemployment rate of 5.9% - a 9-year low) and GDP print (1.7% QoQ – against expectation of 1.6%). The Canadian Markit Manufacturing PMI also came in strong, at 54.4. OPEC provided further support for the CAD with a decision on Thursday to extend outputs cuts - a boon for the traditionally commodity-sensitive Loonie.

Despite these strong figures, it is expected that the BoC will leave rates unchanged at their meeting this week. A decision to keep rates steady will likely not result in losses for the CAD, as this decision has been priced in. US politics, and the Ivey Purchasing Managers Index will be the main impetus for movements this week. 

1. Trade Balance (Oct): Tuesday, December 5^th     

2. BoC Interest Rate decision: Wednesday, December 6^th

3. Ivey Purchasing Managers Index (Nov): Thursday, December 7^th

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GBP/USD - British Pound

Opened last week at 1.3337 and closed at 1.3472.

The sterling appreciated by 1.01%, as the Brexit outlook softened. The Telegraph reported that Britain has agreed to liabilities to the EU worth 100bn Euros – but aims to pay less than half. Though the article was vague on the details of how this payment will play out, markets reacted positively – with many interpreting this as an important step forward for Brexit negotiations. The UK government stated that the Telegraph article was not official, however the story was further corroborated later in the week, with the added detail that the UK will pay 45-55bn Euros with a contingent exposure for that much again.

It is rumored that a settlement on the North Ireland border is also in the works. These are important strides forward, though it should be noted that there is still much do be settled ahead of the EU meeting on the 15^th; notably, the resolution for the North Ireland border, the size and nature of the divorce payment, and the rights of EU citizens.

In economic news, the stress test of the UK banking system came back positive, though it was noted that the sector will suffer severely if Brexit ends in a no deal scenario. The OECD has predicted, largely because of Brexit, that UK GDP growth will slow from 1.5% this year to 1.3% next year, and 1.1% the following year. Many believe that these forecast cuts are over-zealous, but it does highlight the deep pessimism that is priced in the Sterling.

This weeks’ movements will largely depend upon further Brexit developments. 

1. PMI Construction (Nov): Monday, December 4^th   

2. Industrial/Manufacturing Production (Oct): Friday, December 8^th

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EUR/USD - European Central Bank Euro

Opened last week at 1.1932 and closed at 1.1897.

Over the past week, the Euro depreciated by -0.30% against the USD, as the US received a boon from tax cut progress, German retail figures missed the mark, and EZ flash CPI disappointed. Eurozone data was mixed this week, with German CPI predicted to rise at an annualized 1.8% (a surprise to the up-side), but EZ CPI coming in below expectations (1.5%vs. 1.6% expectation). These data were partially balanced by easing German political uncertainty; Merkel’s conservative party agreed on Sunday to pursue a grand coalition with the SPD.

The Euro will likely have some volatility early in the week, as markets process the fallout from US tax reform, North Korea-driven political uncertainty, and developments in Meuler’s Russia investigation. By week’s end, European data will likely be the main driver of EUR/USD movements. 

1. PPI (Oct, EMU): Monday, December 4^th       

2. Markit PMI (Nov, EMU): Tuesday, December 5^th      

3. Non-monetary Policy’s ECB Meeting: Wednesday, December 6^th          

4. GDP (Q3, EMU): Thursday, December 7^th          

5. ECB President Draghi’s Speech: Thursday, December 7^th           

6. Trade Balance (Oct, Germany): Friday, December 8^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?