Currency Market Trend Analysis: February 20, 2018
By The Numbers: Your FX Week In Review
|Date||Releases / Holiday|
|February 19, 2018||President’s Day||USA|
|February 19, 2018||Family Day||Canada|
|February 19, 2018||Eurogroup Meeting||EMU|
|February 19, 2018||BOE’s Governor Carney Speech||UK|
|February 20, 2018||Producer Price Index (Jan)||Germany|
|February 20, 2018||ZEW Survey – Current Situation/Economic Sentiment (Feb)||EMU|
|February 20, 2018||Consumer Confidence (Feb)||EMU|
|February 20, 2018||Non-monetary policy’s ECB meeting||EMU|
|February 21, 2018||Markit Manufacturing/Services PMI (Feb)||EMU|
|February 21, 2018||Average Earnings Including/Excluding Bonus (Dec)||UK|
|February 21, 2018||Public Sector Net Borrowing (Jan)||UK|
|February 21, 2018||Inflation Reporting Hearings||UK|
|February 21, 2018||FOMC Minutes||USA|
|February 22, 2018||Fed’s Quarles speech||USA|
|February 22, 2018||ECB Monetary Policy Meeting Accounts||EMU|
|February 22, 2018||Retail Sales (Dec)||Canada|
|February 23, 2018||Consumer Price Index||EMU, Canada|
|February 23, 2018||Fed’s William Dudley speech||USA|
Upcoming bank holidays and impactful report releases for select countries.
CAD/USD opened last week at 0.7950 and closed at 0.7971 – appreciating by 0.26% despite a reversal in employment and soft manufacturing sales, as the dollar index (DXY) hit its lowest level since December 2014.
Canadian employment suffered a dramatic reversal in January, falling by 88k after two months of strong gains. Manufacturing sales also missed the mark, falling by -0.3% against a +0.2% expectation. Resulting selling pressure was compounded by dovish BoC remarks from Lawrence Shembri (Deputy Governor of the Bank of Canada Manitoba Association for Business Economists). Shembri stated that subdued growth may change the BoC’s reactions, and that higher debt levels, declines in interest rates, and decreased economic growth could challenge the existing framework.
In another week, these events might have resulted in a pullback in CAD/USD – they were however overshadowed by concerns sparked from a higher-than-expected US CPI (in 3-month annualized terms, inflation hit 2.9%). The dollar index fell to 88.18 this past week, it’s lowest level since December 2014. The depreciation was triggered by fears that rising price pressures would force the Fed to tighten policy at an unexpectedly quick pace. Concerns were compounded by the new US budget which is predicted to dramatically increase the twin deficit in coming years. Losses were further compounded by retail sales, which dropped -0.1% against a +0.2% expectation.
The commodity-linked Loonie gained further support from oil, which edged up comments from OPEC Secretary-General Barkindo, who said compliance with crude output cuts in Jan will surpass the December 129% record.
Markets will look to retail sales and CPI for impetus this week.
1. Canada Day: Monday, February 19th
2. Retail Sales (Dec): Thursday, February 22nd
3. Consumer Price Index: Friday, February 23rd
GBP/USD opened last week at 1.3828 and closed at 1.4027 – appreciating by 1.44% as US debt and inflation came into question, and the BoE delivered some hawkish comments.
UK data came in mixed this past week. Consumer prices and inflation both beat expectations (consumer prices = 3.0% against 2.9% expectation, inflation = -0.5% against -0.6% expectation. Retail volumes missed the mark, coming in at 0.1% MoM against a 0.5% expectation. Resulting pressures were subdued by comments from BoE’s Mccaferty, stating that the UK economy is holding up well, and rates will likely be raised earlier than expected.
Brexit made headlines again, with EU Brexit Chief Negotiation Michel Barnier stating that a Brexit transition period is not a given. This comment was compounded by headlines that the EU is set to change Brexit transition conditions.
This week will see further data on UK inflation and earnings – information that will be closely monitored given recent losses in real wages. Markets will be waiting for a clarification on Brexit negotiation strategy form the UK government.
1. BOE’s Governor Carney Speech: Monday, February 19th
2. Average Earnings Including/Excluding Bonus (Dec): Wednesday, February 21st
3. Inflation Reporting Hearings: Wednesday, February 21st
4. Public Sector Net Borrowing (Jan): Wednesday, February 21st
European Central Bank Euro
EUR/USD opened last week at 1.2253 and closed at 1.2414 – appreciating by 1.31% as the DXY came under broad-based pressure, and the ECB reiterated plans to walk back QE come September.
The German ZEW economic sentiment indicator missed the mark, falling from 95.2 to 92.3. Despite this, the common currency had a strong week, gaining upside from both US economic concerns, and supportive comments from the ECB. ECB’s Nowotny stated regarding QE: “I don’t think we will need it (after September), at least not in its current form”. It is thought that after September, the ECB will taper off QE over a 3-month period, leaving 2019 open to rate hikes.
The EUR gained further support from Merkel’s comments indicating that it is quite likely that PSD members will approve the coalition deal.
This week will see a wide release of economic data for the common market. Of particular note will be the German PPI, Markit Manufacturing/Service PMI’s, and the EMU CPI.
1. Eurogroup Meeting (EMU): Monday, February 19th
2. Producer Price Index (Jan, Germany): Tuesday, February 20th
3. ZEW Survey – Current Situation/Economic Sentiment (Feb, EMU): Tuesday, February 20th
4. Consumer Confidence (Feb, EMU): Tuesday, February 20th
5. Non-monetary policy’s ECB meeting (EMU): Tuesday, February 20th
6. Markit Manufacturing/Services PMI (Feb, EMU): Wednesday, February 21st
7. ECB Monetary Policy Meeting Accounts (EMU): Thursday, February 22nd
8. Consumer Price Index (EMU): Friday, February 23rd
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