Currency Market Trend Analysis: December 27, 2017

By The Numbers: Your FX Week In Review

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Market Analysis

CAD/USD - Canadian Dollar

CAD/USD opened last week at 0.7771 and closed at 0.7863 – appreciating by 1.18% as Canadian retail growth and inflation exceeded expectations.

Early in the week, crude retreated from its previous gains, putting downwards pressure on the commodity-sensitive CAD. After reports showed a larger-than-expected draw in US crude inventories, a barrel of WTI broke above $58, and the CAD retraced its losses.

Canadian data came in strong this past week. Foreign Investment rose to $20.8bn from $16.69bn, while retail sales recorded strong growth of 1.5%, and the CPI rose to 2.1% YoY. This CPI exceeds the BoC’s goal of 2.0%, and will give the BoC increase slack with which to hike rates. The chances of a January rate hike have risen, but most analysts do not expect a hike until March or April – at which point NAFTA-related risk will likely be settled, and additional data on Canada’ economic performance will be available. Household debt continues to be a concern, and will likely prevent any hasty decisions by the BoC (a Jan hike included). 

1. Christmas Day: Monday, December 25^th      

2. Boxing Day: Tuesday, December 26^th       

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GBP/USD - British Pound

GBP/USD opened last week at 1.3386 and closed at 1.3321 – appreciating by 0.30% as the UK data came in mixed, but was overshadowed by a downward revision of US Q3 GDP growth.

Last week offered a respite from Brexit updates, leaving markets to focus on data and foreign politics. UK data came in mixed, with the current account deficit narrowing less-than-expected, but annualized GDP growth accelerating to 1.7% - bettering forecasts of 1.5%. The BoE released a report stating that Brexit is expected to reduced sales in 2020, but is unlikely to influence wage growth. This report helped to balance selling pressure created by a deterioration in UK consumer confidence – which reached a four-year low.   

1. Christmas Day: Monday, December 25^th      

2. Boxing Day: Tuesday, December 26^th       

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EUR/USD - European Central Bank Euro

EUR/USD opened last week at 1.1754 and closed at 1.1863 – appreciating by 0.93% despite rising political uncertainty. 

This was a relatively data-light week for the common currency, leaving US data and EZ politics as the main driver of currency movement. German sentiment data came in mixed, with IFO business climate deteriorating slightly, but the current economic assessment exceeding estimates. These data were overshadowed by US Q3 GDP, which was revised down from 3.3% YoY to 3.2%.

The Catalan Independence movement broke headlines again this week, with three Catalan separatists collectively wining a majority in parliamentary elections. This will further complicate the Spanish political situation, and will likely trigger intense negotiations – particularly in regards to who will become the next President of Catalonia.

Over 90 days after the election, Germany is still waiting on the establishment of a new government. Coalition talks between Merkel’s CDU, and the Greens and Free Democrats broke down last month - raising the possibility of a snap election. The German President now appears to be pushing the CDU and Social Democratic Party (SPD) towards a coalition. These governments formed a “grand coalition” previously, and reports indicated that the SPD are wary to do so again without further CDU concessions. It has been reported that these concessions may include the appointment of the SPD leader as finance minister. Talks are scheduled to begin on January 7^th.

This will be a very data-light week, leaving politics both domestic and abroad as the main impetus for revaluations. The German political situation may be on hold until the 7^th, but further Catalan developments will be in particular focus. 

1. Christmas Day: Monday, December 25^th     

2. Boxing Day: Tuesday, December 26^th      

3. Economic Bulletin (EMU): Thursday, December 28^th     

4. Harmonised Index of Consumer Price (Dec, Germany): Friday, December 29th             

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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?