December 10 2017

Dec. 10, 2017 (Goldman Sachs FX Research Team) - Our traders are biased to fade NFP related USD moves on both sides and remain long GBP. Looking at GBP we had some good news on the Brexit front with a deal reached overnight, however, markets were seemingly disappointed with the vagueness in the language (likely necessary to keep all parties onboard) which has led to a selloff in cable as New York’s walked in.

-          EUR: USD demand over the week has been noted most particularly in EURUSD as we traded towards 1.1720 support overnight. Ahead of payrolls we do not like chasing EURUSD lower through 1.1720 on a strong report , but would sell a rally on a weaker number, barring flat wage growth, towards 1.1780, 1.1810.  on a break below 1.1700, we expect EURUSD to be well support near 1.1665.

-          CAD: Views are mostly the same in CAD after Wednesday’s position squeeze triggered by a still-dovish BoC on the margin. Much of the idiosyncratic CAD weakness has  played out in the desk’s view as we look for the upcoming data calendar for guidance from here.  Broader dollar price action will likely dictate price action over the coming sessions with NFP today and the FOMC announcement next week being the main catalysts to look out for. USDCAD remains a buy on dips over the short  term technically and given that the recent USD demand across the FX complex is showing little signs of abating – a duration selloff over the past 24 hours adding to the most recent leg. 1.2820 then 1.2785 the levels to watch below with resistance at the cycle highs at 1.2910/30.

-          SEK: SEK is in play. There’s been a well flagged seasonal characteristic that EURSEK goes higher a few days after PPM (Annual payment by The Swedish Pension Agency to various mutual funds. A large share of savings is invested in foreign assets. This disbursement puts downward pressure on SEK). Some estimates put this to be SEK 39-40bn this year of which ~60% is expected to be invested abroad. If we assume half of that is hedged, then the flow effect would be around 12bn. Looking at the last 5 years, we find that this flow effect extends for about 5-6 days afterwards. Payment this year is expected to be on Monday Dec 11th, hence we are biased to be long EURSEK here. Support comes in at 9.89, and resistance at 10 and 10.09.

 


USA 

Dec. 8, 2017 (Tempus Inc.) - The U.S. Dollar improved once again this week based on positive global market sentiment and the passing of a two-week agreement that avoids a government shutdown.

USD

The outlook of congressional consensus on a spending bill remains a concern, but investors welcomed the relief. Per the Bloomberg Dollar Spot Index, the “buck” has gained for a fifth consecutive day, its best appreciating streak since March.

Non-Farm Payroll figures revealed an expansion of 228K jobs, exceeding expectations of 195K. Nevertheless, the overall bag of data this morning came in mixed as Average Hourly Earnings managed to grow by just 0.2% instead of the estimated 0.3%. Wage growth is imperative for an optimistic economic outlook and revised October numbers surprised with a contraction. Unemployment stayed put at 4.1%. The greenback is seesawing as markets react.

EUR

The Euro is trading in lower ranges as good news overnight for the U.S. hurt the shared currency. Equity markets rallying also diminished the Euro’s role as a safe-haven.

Additionally, Industrial Production numbers in Germany came in much lower than predicted with 0.9% growth when economists calculated 1.4%. It is likely the currency will stay quite sensitive to changes in other regions with data already a negative factor leading towards depreciation last seen in over two weeks.

GBP

The Pound saw a lot of up-then-down action overnight with a Brexit breakthrough which now points to advancements in the historic negotiations. Prime Minister Theresa May achieved a deal with European Union officials that puts to rest concerns over an Irish border, a final bill, and the protection of rights of EU citizens within Britain. Basically, the PM decided the best route to end deadlock in talks was to follow a path towards a very soft Brexit.

“Leave” campaign political heads seemed highly dissatisfied while stock markets flourished. It seems like the domestic political instability remains a downside risk for Sterling as well as the unknowns regarding a future with less access to European markets. Progress in talks originally boosted GBP, but the doubts and uncertainties that cloud the situation prevented further gains.