Currency Market Trend Analysis: October 16, 2017

By The Numbers: Your FX Week In Review

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Market Analysis

CAD/USD - Canadian Dollar

Opened last week at 0.7969 and closed at 0.8003.

The CAD rose by 0.42% against the USD, as data surprised to both sides, and oil prices hiked. West Texas Intermediate rose above $50.00 a barrel this past week, a boon for the commodity-sensitive Loonie. Housing starts came back higher than expected (217.1K vs. 210K), but were balanced by a building permits contraction (-5.5% vs. -1%).

Fed President John Williams stated that he was losing confidence that a tax reform would be seen in the next six months, initiating a USD selloff near the week’s end. US core CPI rose less than expected (0.1% vs 0.2%). This disappointing data was balanced by annual CPI, which was revised from 1,.9% to 2.2% due to rising energy prices. Odds of a US December rate hike have not changed materially. With little CAD data coming till Friday, trading will likely be sideways through much of the week, driven largely by US data releases. Any announcement from the Trump administration regarding new Fed chair appointments could see increased market movements. 

1. BoC Business Outlook Survey: Monday, October 16^th

2. CPI (Sep): Friday, October 20^th

GBP/USD - British Pound

Opened last week at 1.3131 and closed at 1.3304.

The sterling rose by 1.32% against the greenback last week, as the USD took a data-driven dive, and fears of a hard Brexit softened slightly. The ONS revised up Q2 UK labor costs from 1.6% to 2,4%, lending support towards a potential November rate hike. Politics continues to be a key driver of GBP movement, with Brexit woes being compounded by rumors of discontent with May’s leadership within the Conservative Party. The 5^th round of Brexit talks started this past week, concluding with EU Chief Negotiator Michel Barnier stating that talks had reached a deadlock, and that little progress has been made. Resulting losses for the GBP were partially recovered when Barnier extended an olive branch, stating that he is willing to offer a 2-year transition deal.

A Rabobank study published this week estimates that a hard Brexit would cost the UK economy 18% of GDP growth until 2030, with soft Brexit estimates much milder. The November rate hike is reigning in much of the downside, but the pound is still weighed on by political and growth risk. If significant progress in the Brexit negotiations is not demonstrated, a hard Brexit will be increasingly priced into the GBP, initiating further depreciation. 

1. PPI/CPI (Se): Tuesday, October 17^th     

2. BoE’s Governor Carney Speech: Tuesday, October 17^th    

3. Average Earning Including Bonus (Aug): Wednesday, October 18^th

4. Retail Sales (Sep): Thursday, October 19^th

5. Public Sector Net Borrowing (Sep): Friday, October 20^th  

EUR/USD - European Central Bank Euro

Opened last week at 1.1743 and closed at 1.1837.

Over the past week, the Euro appreciated by 0.80% against the USD, as Catalan-driven political risk softened slightly. The President of Catalonia, Puigdemont, stated that he intends to negotiation plans of separation with the government, and will be suspending the referendum result for the time being. Leaving some confusion as to whether independence was being called for. Spanish Prime Minister Rajoy responded by giving officials until Monday morning to clarify their stance. If independence is claimed, Catalonia will be given a 3-day grace period to reconsider, before Rajoy forces the Catalan administration out of office. Angela Merkel’s incomplete victory also continues to contribute to EUR political risk, with departing German Financial Minister Schaeuble affirming that a coalition may take months to form.

Last week’s ECB minutes hinted that an announcement regarding the future of QE would come at the ECB meeting on the 26^th. This leaves politics and data as the main drivers in the interim. August Industrial output came back at 1.4%, the highest since January. Catalan-related political risk will continue to drive rates in the short-term, but Eurozone data continues to come in strong, and will likely provide support leading up to the ECB meeting. 

1. Trade Balance (Aug, EMU): Monday, October 16^th    

2. PPI/CPI (Sep, EMU): Tuesday, October 17^th    

3. Economic Sentiment (Oct, EMU): Tuesday, October 17^th    

4. ECB’S President Draghi’s Speech: Wednesday, October 18^th      

5. European Council Meeting: Thursday, October 19^th      

6. European Council Meeting: Friday, October 20^th      

7. PPI (Sep, Germany): Friday, October 20^th      

Charts: TradingView

About the Author

 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?