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Monday, September 25, 2017

Currency Market Trend Analysis: September 25, 2017

Currency Market Trend Analysis: September 25, 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 Entity
September 25, 2017 ECB VP Vitor Constancio Speech EMU
September 25, 2017 ECB President Draghi Speech EMU
September 25, 2017 ECB Executive Board Member Cœuré Speech EMU
September 25, 2017 FOMC Member Kashkari Speech USA
September 26, 2017 ECB Executive Board Member Praet Speech EMU
September 26, 2017 FOMC Member Mester Speech USA
September 26, 2017 FOMC Member Brainard Speech USA
September 26, 2017 Fed’s Yellen Speech USA
September 27, 2017 GDP (Q2) UK
September 27, 2017 BoC Governor Poloz Speech Canada
September 28, 2017 ECB’s Praet Speech EMU
September 28, 2017 BoE’s Governor Carney Speech UK
September 28, 2017 Economic Sentiment Indicator (Sep) EMU
September 28, 2017 Personal Consumption/GDP (Q2) USA
September 29, 2017 Unemployment Change Germany
September 29, 2017 CPI (Sep) EMU
September 29, 2017 ECB’s President Draghi Speech EMU
September 29, 2017 BoE’s Governor Carney Speech UK

Upcoming bank holidays and impactful report releases for select countries.

Market Analysis

CAD/USD - Canadian Dollar

Opened last week at 0.8172 and closed at 0.8125.

The CAD fell by -0.57% against the USD, amid disappointing Canadian data and a US announcement of balance sheet normalization. BoC Governor Lane stated this past Monday that rate hikes were made in the context of strong exports and investments; he highlighting that exports would be carefully monitored in the wake of the recent rate hike, and would be a key determinant for future hikes. Markets interpreted this as a dovish statement, readjusting expectations for an October rate hike from 53% to 41%. Canadian CPI and retail sales figures came in below expectations (Annualized CPI: 1.4% vs. 1.5%, Retail sales up 0.2% vs. 0.4% expectation). These factors were partially counteracted by rising oil prices, traditionally a boon for the commodity-sensitive Loonie.

This will be a data-light week for the CAD, with BoC Governor Poloz’s Speech on Wednesday being the highlight. With few events on the calendar, markets are likely to look to turn their attention to the large volume US data releasing this week. Short-term movements will depend on how this US data fairs against expectations. While further short-term CAD consolidation is possible, the expectation of further Canadian rate hikes will likely provide long-term support. 

1. BoC Governor Poloz Speech: Wednesday, September 27th

 

 

GBP/USD - British Pound

Opened last week at 1.3482 and closed at 1.3529.

The sterling appreciated by 0.35% against the greenback last week, despite Moody’s downgrade of the UK credit rating to Aa2. Moody’s sighted damage to the UK economy caused by Brexit, as well as insufficient Brexit negotiation progress reinforced by PM May’s detail-lacking speech on Friday. Though light on details, May’s speech did hint that that the UK could leave the EU before March 2019, followed by a 2-year transitionary period. In response, the EU Chief Brexit negotiator stated that Britain must “settle the accounts” and hasten negotiations, if they want a free trade deal in place when they exit the bloc.

This Brexit-related news was balanced in-part by a hawkish turn from the BoE; Andy Haldane, Chief Economist of the BoE hinted that UK interest rates by rise this year. This is of particular interested given Haldane’s dovish track-record. Mark Carney, the Governor of the BoE, displayed both dovish and hawkish sentiment in his speech. Carney highlighted that spare capacity is being absorbed more quickly than anticipated, but warned that there are “still considerable risks to the outlook”. 

Markets currently anticipate a BoE rate hike of 25bp at the November 2nd meeting, reversing the previous rate cut. The sterling is still underperforming the average of the G7 economies, and inflation remains a concern. Additionally, rising interest rates in other developed countries may pressure the BoE to prematurely hasten their rate hike schedule. These factors, combined with Brexit-related concerns, have created a deep pessimism regarding the GBP. The last three weeks have seen a rapid appreciation of the GBP (totaling 4.52%); given the pace of these gain, consolidation may be in the cards this week. For gains to continue in the longer term, real rage growth must improve, and markets need to be reassured that Brexit will progress smoothly.

 

1. GDP (Q2): Wednesday, September 27th    

2. BoE’s Governor Carney Speech: Thursday, September 28th   

3. BoE’s Governor Carney Speech: Friday, September 29th    

 

 

EUR/USD - European Central Bank Euro

Opened last week at 1.1937 and closed at 1.1970.

Over the past week, the Euro appreciated by 0.27% against the USD, boosted by strong PMI’s. If PMI and inflation data continue to come in strong, it could further hasten the ECB’s rate hike and QE tapering schedules. Markets currently expect that the ECB will announce, at their October meeting, that QE will continue at a reduced pace through the first half of 2018. Some speculate that this tapering will take place in three steps, each consisting of am EUR 20bn reduction. 

This past week saw a partial upset in the German election; Angela Merkel is still the Chancellor, but her bloc has lost its majority. The most likely outcome, is that Merkel will try to create a coalition with the Free Democrats and the Greens (this has been dubbed the “Jamaica Coalition”, due to the parties’ colors). It is estimated that this coalition will not be functional until at least December, creating some political uncertainty.

Despite this political upset, the Euro is still supported by relatively strong growth, and the expectation of QE tapering. This weeks’ movements will be heavily influenced by Draghi’s speech and Friday’s CPI figures. Inflation markers are being carefully monitored, as they will have a heavy influence on the magnitude and speed of the ECB’s QE tapering. A short-term consolidation is possible, as Merkel’s incomplete victory continues to be priced in, but the medium-term still looks bullish. 

 

1. ECB VP Vitor Constancio Speech: Monday, September 25th     

2. ECB President Draghi Speech (EMU): Monday, September 25th    

3. ECB Executive Board member Cœuré Speech: Monday, September 25th    

4. ECB Executive Board member Praet Speech: Tuesday, September 26th    

5. Economic Sentiment Indicator (EMU, Sep): Thursday, September 28th    

6. Unemployment Change (Germany): Friday, September 29th   

7. CPI (EMU, Sep): Friday, September 29th  

8. ECB President Draghi Speech: Friday, September 29th   

 


 

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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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