ATF Trading Room

Sept. 5, 2019 (Western Union Business Solutions)  – Easing global political worries shift market to risk on mode

-             USD down 3% versus GBP in 48 hours

-             Big data day ahead for the US

-             Rising oil prices give welcome boost for the Canadian Dollar

Easing global political worries see safe haven sell off, including the US Dollar!

Market sentiment has improved as US-China trade talks look set to resume next month. In addition, easing global political worries from Hong Kong, Italy and the UK helped boost risk appetite. Global equities rallied along with riskier assets, emerging market currencies and oil prices.

Reports that Hong Kong withdrew the extradition bill, that has triggered months of protests and unrest, was cheered by investors. In Italy, a new coalition government was formed which gave a welcome boost to the Euro. While in the UK, MPs successfully passed a draft law to stop a potentially chaotic no-deal Brexit in October. China’s yuan and the closely linked Australian and New Zealand dollars appreciated on the news. The Japanese Yen and Swiss Franc, which draw in safe-haven demand in times of geopolitical stress, depreciated, as traders unwound these safer positions and sought out riskier high yielding assets.

The US Dollar index, which measure the strength of the dollar against a basket of currencies, slid for a second straight session, experiencing its biggest daily fall in two weeks.

GBP

In the last 48 hours, Sterling has recovered almost 3% against the Dollar. This rally occurred after law makers voted to force the Prime Minister to seek a three-month delay to Brexit if, he fails to secure a transition agreement with the EU.

Although a no-deal Brexit is still on the table, the likelihood of that has reduced dramatically. Combined with USD weakness, the British Pound has managed to record its biggest 1-day gain since March. A delay to Brexit until 2020 and a subsequent October 19 election could see more gains for GBP although further upside past 1.30 could be limited given the uncertainty that elections can create.

Big U.S. Data Day Ahead

We have a multitude of data out tomorrow for the US. Starting with Jobs data at 8:30am (EST) the market will be keeping a close eye these for any hint towards Friday’s official jobs report. Later this morning we then have non-manufacturing PMI.

US stocks recovered over night thanks to the fact US China talks are now set to resume in October. As mentioned earlier this has seen a sell off safe haven assets including the US Dollar and subsequently the Dollar begins the day from behind. Any surprise to the downside for todays data releases could accelerate losses for the day, especially against the emerging market currencies.


USA 

Aug. 2, 2019 (Western Union Business Solutions)  – The U.S. dollar kept below multiyear peaks as solid jobs data wasn’t enough to allay concerns about the amped up trade war. Making good on the Fed chairman’s generally rosy outlook for U.S. growth, America’s jobs report met forecasts with a gain of 164,000 in July, a healthy amount that kept unemployment at a low 3.7%. Wages surprised to the upside with a 3.2% annual increase. If not for the trade troubles, a print like today’s would be consistent with a stronger dollar and only minor interest rate adjustments by the Fed.

EUR

The euro stabilized above 26-month lows thanks to the dollar’s trade war-induced decline. It also helped at the margin that euro zone retail sales surprised to the upside with a 1.1% jump in June, which easily cleared forecasts of a modest uptick. Still, the data shouldn’t offer meaningful support to the euro, particularly after the previous number got downgraded, underscoring the bloc’s poor prospects.

JPY

Safer bets like the yen and Swiss franc were the initial winners of the surprise escalation in the U.S.-China trade war. The yen turned the tables on the dollar, as USDJPY plunged by 2 ½ yen to late June lows. The ongoing trade feud has been credited with slowing global growth and the latest round only increases the headwinds. Treasury yields collapsed, weighing on the dollar and suggesting a higher likelihood of the Fed cutting rates again in September.

AUD

The Aussie dollar crashed to seven-month lows after the latest salvo in the U.S.-China trade war added to the dim outlook for Australian growth, a scenario that suggests a low bar for the Reserve Bank to lower lending rates from 1%. The RBA could take action as soon as its Aug. 6 meeting.

CAD

The loonie lurched to new six-week lows despite good news on the Canadian economy. Canada logged a surprise trade surplus of C$136 million in June, its second surplus in as many months. However, the size of the surplus moderated from a downwardly revised C$556 million in May. Sustaining a trade surplus appears tougher for Canada after the latest intensification of the U.S.-China trade war. The loonie also appears a bit hungover after oil’s biggest single-day swan dive in more than four years, when it shed more than $4 and closed Thursday below $54.

 

 

 

 

Aug 1, 2019 (Econoday) – The August BoE MPC meeting again lived up to market expectations and left policy on hold. Bank Rate remains pegged at 0.75 percent and the ceiling on QE at £445 billion (of which gilts, £435 billion). The vote was another unanimous 9-0.

Sterling resumed a slide against the greenback that knocked it to 2 ½ year lows.

The MPC also opted to retain a tightening bias under which the Bank believes that ‘‘..increases in interest rates, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2 percent target..”. However, compared with June, the bias has been modified slightly and higher rates now require both a smooth Brexit and some recovery in the global economy. In line with the Fed and a number of other central banks, the UK monetary authority would seem to be attaching increasing weight on international developments.

Under its central case scenario (smooth Brexit), CPI inflation is expected to climb on the back of excess demand and stand at 2.4 percent at the end of the 3-year forecast horizon. In other words, the current stance of policy and market pricing for borrowing costs in the future remain too accommodative to meet the medium-term inflation target. Interestingly, the Bank still sees excess demand even in the event of sterling appreciating by as much as 10 percent.

Brexit uncertainty again ruled out any policy shift today but the new Quarterly Inflation Report (QIR) still shows no quantitative analysis of what a no-deal outcome might mean for GDP and consumer prices. In line with previous meetings, the August minutes adhere to the official line that any monetary policy response to whatever shape Brexit finally takes will not be automatic and could be in either direction.

Apart from the amendment to the policy bias, there is little here for financial markets to chew on. The next move in official rates could be up or down but, in either eventuality, the chances are that it will not be for some time.

June 28, 2019 (Western Union Business Solutions)  –  The greenback was subdued ahead of data that could cement an imminent reduction in U.S. interest rates. The euro, yen and the quarter’s best performer – the Canadian dollar – all ticked higher. Sterling also firmed while emerging markets softened, a reflection of a cautious mood ahead of tomorrow’s trade talks between the U.S. and Chinese presidents. Ahead of the Trump-Xi meeting Saturday at 11:30 a.m. local time (Friday 10:30 p.m. ET), all eyes will be on U.S. personal income and spending and the Fed’s main inflation yardstick. Both incomes and spending are expected to rise but underlying inflation is forecast to steady at a low 1.6%, below the Fed’s 2% goal. Tame inflation would allow cover for the Fed to cut rates as soon as its next meeting in late July. The dollar steadied above multimonth lows this week after Fed officials tempered expectations of bold rate cuts in the months ahead.

EUR

Up about 2% in June, EURUSD was on pace for its best month in nearly 1 ½ years against the greenback. The euro firmed thanks to data showing a bigger than expected rise in euro zone core inflation which moved to 1.2% from 1%. While higher, underlying inflation continued to run well below the ECB’s near 2% goal. The weak outlook for inflation and growth keeps pressure on the ECB to deliver stronger stimulus in the months ahead, policies that would put a headwind on the single currency.

CAD

Canada’s dollar extended its stellar run after better than expected data. Canada’s economy grew at a 0.3% rate in April, above forecasts of 0.1% from a 0.5% in March. The data added to evidence of Canada’s economy turning the corner after a recent slowdown. Canada’s resilient economy suggests a lower chance of the Bank of Canada cutting interest rates. By contrast, the market expects America’s central bank to cut rates next month. Canada’s dollar was poised to finish the month in first place with a 3% rise against the greenback.

Apr. 3, 2019 (Western Union Business Solutions)  – A mostly weaker U.S. dollar retreated from three-week highs. The buck pushed higher against the yen, reaching a two-week peak, but it slid versus counterparts from Europe, Canada and Australia. Emerging markets like the South African rand and Mexico’s peso also strengthened. A tentative uptick in optimism on the trade, global growth and Brexit fronts is conspiring to pressure the safer greenback. The buck’s bullish glow tends to fade when global risks abate. That’s what’s happening today as Europe released reassuring services data and Theresa May sought bipartisan Brexit talks with the Labour Party to find a compromise deal that avoids a messy break from the EU. Meanwhile, the U.S. and China today hold another round of trade talks in Washington. In a hole, the dollar will look for a direction from U.S. numbers today on private sector hiring and services growth.


Euro rescued by stronger services growth

 

The euro rebounded from three-week lows after a double shot of good news on the bloc’s economy. Euro zone services sector growth got revised higher while the 0.4% jump in February retail spending was two times stronger than forecasts of a 0.2% rise. While encouraging, today’s data may only offer a momentary boost to the single currency given the still fragile shape of the bloc’s fundamental health.

 

Brexit winds shift, boost sterling

 

Brexit news continues to hold significant sway over sterling as it bolted higher on hopes that Britain might avoid a nasty, economy-damaging split from the EU. Prime Minister Theresa May vowed to hold cross-party talks with her Labour rivals to try to find a compromise deal. May’s potential teaming with Jeremy Corbyn, the head of the Labour Party, suggests a greater likelihood of Britain pursuing a softer Brexit, the scenario that could be least disruptive to growth compared to no deal exit. Sterling remains vulnerable to two-way volatility until some form of Brexit clarity takes shape.

 

Loonie nears 2-week peak

 

Canada’s dollar flirted with two-week highs, boosted by oiling nearing $63, a new five-month high. Market optimism is in greater supply today on easing concerns over trade, global growth and Brexit. The loonie is also taking advantage of the weaker U.S. dollar whose otherwise rosy complexion tends to fade when global risks abate and investors wade into riskier waters. The loonie’s main sights are set on Friday data on Canada’s job market. Hiring is forecast to slow after big gains over recent months. Forecasts call for a net increase of 1K jobs in March, down from more than 50K in February. Unemployment is expected to remain at a low 5.8%.

 

Disappointing data keeps dollar on back foot

 

The greenback moved from three-week highs to its lowest in nearly a week amid mounting evidence of a moderating American economy. ADP’s report on March hiring underwhelmed with an increase of 129,000, the fewest in 1 ½ years. By coming in below forecasts of 170,000, it suggested a higher chance that the more important nonfarm payrolls on Friday might also print below expectations of a gain of 180,000.

 

 

Jan. 24, 2019 (Western Union Business Solutions)  – The year’s first ECB Day got off to a soggy start for the euro which slipped to three-week lows against its U.S. rival. By contrast, the greenback enjoyed broad gains with Europe’s weak economy dominating the spotlight. Across the board gains lifted the U.S. dollar versus counterparts from Japan, Britain and Canada. Emerging markets were generally lower amid persistent concerns about a slowing world economy. As expected, the ECB left its benchmark interest rate unchanged at zero with markets now waiting on an 8:30 a.m. ET press conference by the central bank president, Mario Draghi. Ahead of the ECB’s first announcement of the year, Germany reported that its influential manufacturing sector unexpectedly contracted in January, which pointed to the bloc’s slowdown stretching into the new year. Also in focus today will be weekly data on U.S. jobless claims which are forecast to increase, albeit from historically low levels.

 

AUD

 

The Aussie dollar sank to three-week lows despite bullish jobs data from Down Under. Instead, the Aussie took its main cue from a move by one of Australia’s top banks to raise mortgage rates as it contends with rising funding costs. With the nation’s housing market cooling, higher mortgage rates could hasten a local interest rate cut from 1.50%, an already record low level. With borrowing rates dominating the Aussie conversation, it overshadowed jobs data that showed employers added 21,600 jobs in December, a larger than expected amount that pushed unemployment down by a notch to 5%.

 

EUR

 

The euro fell to 2019 lows after the ECB left interest rates unchanged and acknowledged that risks facing the 19-nation economy had intensified. ECB President Mario Draghi reiterated that the central bank expected to keep interest rate low through the summer, maybe long if necessary. The fact that Mr. Draghi expressed greater concern over the bloc’s economic health suggested a later rather than sooner rate hike. The prospects of lower rates for longer is negative for the euro but perhaps somewhat less so with the Fed not expected to boost borrowing rates any time soon.

 

GBP

 

Sterling’s weekslong run ran into resistance which coaxed the U.K. unit lower. The pound scaled 10-week highs this week as growing expectations that Britain might delay its departure from the EU or perhaps put the Brexit impasse up to a second referendum. While the market appears less fearful of a dreaded no deal, hard Brexit, such a dire scenario hasn’t been removed from the table and could quickly return to undercut the pound.

 

USD

 

The dollar maintained a gain after spectacular news on America’s job market. Weekly jobless claims unexpectedly fell by 13,000 to 199,000, the lowest in nearly 50 years. The data may have been skewed by a holiday, however. Still, the underlying trend was consistent with the labor market retaining broad strength which bodes well for future hiring and wage growth. America’s record-long government shutdown could restrain the dollar by clouding the economy’s true health since several data releases have been delayed.

 

CAD

 

Lower oil prices and a stronger U.S. dollar kept Canada’s so-called loonie pinned near two-week lows. Crude, a top driver of Canada’s commodity influenced currency, fell by 0.5% to below $53. The price of oil could see surprise volatility over the short run given the political crisis in Venezuela. Loonie fundamentals suffered a setback this week in data showing a bigger than expected retreat in Canadian consumer spending, a potential harbinger of weaker growth over the final quarter of 2018.

Oct. 24, 2018 (Western Union Business Solutions) –  For the first time ever, the European Commission has requested a euro area country to revise its draft budget plans. Italy is not backing down though, and the far-right Deputy Prime Minister Matteo Salvini believes the new measures are necessary to restore economic growth. The proposed budget deficit of 2.4% of GDP is triple the amount forecast by the previous government. Despite being below the 3% deficit limit under eurozone rules, the Commission has given Italy three weeks to present a new plan or face possible fines.   A Reuters report suggested Brexit will be completely overshadowed if the Italian budget crisis escalates.  Italy’s debt to the European Central Bank (ECB) is vast and it is unlikely the central bank will want to buy more Italian bonds than planned. The ECB is expected to end its quantitative easing programme by year-end, making its policy meeting an important event tomorrow.

 

CAD

 

The Bank of Canada is expected to increase interest rates from 1.5% to 1.75% today at 10am EST. A rate hike today could help the Canadian dollar strengthen having been under heavy selling pressure due to a run of poor economic data and the recent fall in oil prices.

 

EUR

 
Economic growth fears in the Eurozone have caused the euro to continue to slide against a basket of currencies. During European trading PMI surveys across the Eurozone showed growth had slowed much faster than originally anticipated, German private sector growth reported slowing to the lowest level in over three years while manufacturing in France hit a two year low. Unsurprisingly market reaction has been unfavourable for the euro, causing it to slide 0.8% against the dollar.

 

GBP

 
Prime Minister Theresa May will meet with conservative lawmakers at a private meeting in parliament as she seeks to calm growing tensions over her Brexit strategy. Ms May will address the “1922 Committee” of backbenchers in her conservative party and attempt to convince them agree to with her proposal. A vote of no-confidence against the PM would be triggered if 48 conservative lawmakers submit letters to the chairman of the 1922 committee to demand such a vote. The Sunday Times said 46 have already been sent. If the PM is unable to convince the Tory backbenchers to support her, this could become a huge risk to the PM’s job and to Sterling.

Oct. 18, 2018 (Western Union Business Solutions) –  The U.S. dollar steadied after a Fed-inspired surge overnight to one-week peaks. The greenback was mostly flat against rivals from Europe, Japan and Canada after pushing to its strongest levels since at least Oct. 11. The Aussie dollar was an outlier with gains of its own that came on the back of bullish domestic jobs data. America’s currency got a lift from the latest Fed minutes that showed policymaking mulling how high to boost borrowing rates with the economy in strong shape. The positive for the buck was that the minutes toyed with the notion of increasing rates so high that it restrains growth to ensue the lid stays on inflation. The dollar succumbed to some profit-taking ahead of a slew of U.S. data Thursday on weekly jobless claims, the Philly Fed index and leading indicators.

 

GBP

 

Sterling descended to one-week lows after a high stakes Brexit summit came and went with little to no progress. Adding salt to the pound wounds: U.K. retail sales disappointed with a bigger than expected fall by 0.8% in September, the weakest in 6 months. The data came on the heels of British inflation slowing toward the Bank of England’s 2% goal which fit with the outlook of area borrowing rates staying put over the foreseeable future, a dovish view compared to the hawkish Fed that’s on track to raise rates again this year. The prospect of prolonged uncertainty over Brexit bodes negatively for sterling’s coming prospects.

 

CAD

 

A sharp slide in oil knocked Canada’s commodity-driven currency to one-week lows. Oil moved below $69 a barrel Thursday, a day after staging a 3% plunge. A lack of meaningful Canadian data until tomorrow has led the loonie to take its main cue from oil markets. Come Friday, underlying Canadian inflation is forecast to remain around 2%, the Bank of Canada’s sweet spot, while retail sales are expected to rise by a solid 0.3% for a second straight month. Outcomes near or better than expectations would help to green light a rate hike to 1.75% from 1.50% on Oct. 24 when the central bank issues its next policy decision.

 

JPY

 

The yen tracked major currencies lower against the greenback which clocked one-week peaks versus its Japanese rival. The yen tested the weaker end of its range after the latest Fed minutes showed widespread conviction in policymakers boosting borrowing costs at a continued gradual pace over the coming year which differs from the outlook for Japan where interest rates are expected to remain below zero for the foreseeable future to support the world’s tepidly growing No. 3 economy. Still, downside for the yen has been capped by volatile stock markets, suggesting USDJPY strength may come in dribs and drabs.

 

USD

 

Better than expected U.S. data kept the dollar near one-week peaks. The decline in weekly jobless claims to 210,000 from a revised 215,000 was better than forecasts of a print of 212,000. The Philly Fed index of Mid-Atlantic factory growth slowed less than expected to 22.2 for October, above forecasts of 20.5. The data fit with the thesis of a strong economy and the Fed pushing rates higher over coming quarters.

 

Sept. 28, 2018 (Western Union Business Solutions) –  The U.S. dollar is closing out the quarter on a run with solid gains Friday. After abandoning the dollar over recent weeks and sending it to multimonth lows, the market has embarked on a new buying spree of the U.S. unit which soared to two-week highs overall and to 2018 peaks against the yen. Down more than 0.5%, the euro led losses against the dollar as it plunged in response to twin negatives from Europe. Italy announced a bigger than expected budget deficit which undermined market confidence in Rome’s ability to service its massive debt burden. Core inflation in the euro zone unexpectedly weakened below 1%, dealing a blow to ECB optimism in prices making a vigorous comeback. The dollar also strengthened against sterling and emerging markets but was little changed against Canada and Switzerland. Big ticket data are due today on the American consumer and inflation, and July growth from Canada.

 

USD

 

The greenback kept near session peaks after largely in line with expectations U.S. data. Both consumer income and spending increased by 0.3% in July. Included in the data was the Fed’s main gauge of underlying inflation which steadied at an annual rate of 2%. The data suggested full steam ahead for the Fed to deliver a fourth and final rate hike of the year by December. Still, with inflation remaining low and stable, it’s unlikely to meaningfully add to the dollar’s recent burst of strength since tame prices won’t pressure the Fed to tighten policy at a faster pace.

 

EUR

 

A double dose of discouraging news from Europe sent the euro tumbling more than 0.5% to two-week lows. Italy announced a debt to GDP budget deficit of 2.4%, a higher than expected amount that rattled market confidence in Rome managing one of the bloc’s biggest debt piles. While the 2.4% level is below the EU’s 3% ceiling, it’s higher than the market had expected. Rome appears to be wagering that by stepping up spending it would boost government revenue which could then be used to pay down the deficit. The danger is that if Rome’s game plan should backfire it could heap pressure on the ECB to backstop its finances or risk unleashing another sovereign debt crisis. Area data also served as a euro sell signal as core inflation unexpectedly slowed to 0.9% in September, a move further away from the ECB’s just below 2% goal. The data is seen as a setback to ECB hopes of a vigorous bounce back in inflation, a narrative that has supported the euro.

 

CAD

 

Canada’s dollar defied the stronger greenback to push higher after better than expected area growth was supportive of the Bank of Canada increasing borrowing rates next month. Canada’s economy bounced back by growing 0.2% in July, the start of the third quarter, after flatlining in June. The data, coming in above forecasts of 0.1%, increased the likelihood of a BOC rate hike to 1.75% from 1.50% on Oct. 24 to nearly 80% from about 70% Thursday.

 

JPY

 

The yen closed out the quarter at fresh 2018 lows, pressured by a broadly stronger greenback. The opposing paths of monetary policy in Japan, which is expected to remain low and south of zero for a long time yet, and the Fed which raised rates this week and expects to deliver more also served as a significant weight on the Japanese currency.

Sept. 25, 2018 (Western Union Business Solutions) – The U.S. dollar was mostly listless ahead of an expected interest rate hike by America’s central bank. The euro kept firm near three-month peaks thanks to hawkish comments this week by the head of the ECB. Sterling was also positive while the yen fell to fresh two-month lows as safer plays struggled with global stocks higher. Canada’s dollar steadied near one-week lows as elevated trade tensions overshadowed higher oil prices above $72. The Fed starts a two-day policy meeting today that’s all but guaranteed to deliver a ¼ point rate hike tomorrow. The buck’s lackluster tone is a sign that some think the Fed might not sound an overtly hawkish tone when it renders its decision Wednesday at 2 p.m. ET. Ahead of the Fed’s big announcement, on tap today are U.S. reports on home prices and consumer confidence with mild moderation on the cards.

 

JPY

 

The yen weakened to its lowest in more than two months, pressured by expectations of a U.S. rate hike this week and higher global stocks, a backdrop that’s quenched investor appetite for safer plays. But to sustain its upturn, USDJPY would likely to make a clean break above resistance. Failure to do so could spark a technical turnaround for the Japanese currency.

 

USD

 

A sense the Fed may stop short of a hawkish rate hike this week largely accounted for the dollar’s lackluster performance. The Fed is widely expected to raise rates by a quarter percentage point to 2.25%. Being one of its quarterly meetings, the Fed will also provide a slew of forecasts for the economy and interest rates. With growth headwinds threatening on the horizon, the Fed could sketch a more cautious outlook for monetary policy. U.S. growth could slow next year with fiscal support likely to fade while trade spats threaten to crimp consumer sentiment and spending. Higher U.S. borrowing rates could also slow growth.

 

EUR

 

The euro kept close to three-month highs thanks to hawkish inflation remarks Monday from Mario Draghi, the head of the ECB. Mr. Draghi voiced confidence in inflation picking up in the months ahead which euro bulls read as a cue that the central bank may be closer than previously thought to raising borrowing rates from crisis lows. The ECB’s top economist today attempt to water down Mr. Draghi’s comments. Still, the euro’s big picture appears to be brightening on the perception that the Fed is approaching the end of its tightening cycle while the ECB is set to lift rates next year, a scenario that would erode the dollar’s yield advantage.

 

CAD

 

Canada’s dollar was mostly stationary near one-week lows as nagging trade tensions overshadowed a spike in oil to new multimonth highs above $72. Most of the trade concerns stemmed from the ongoing spat between the world’s two biggest economies, the U.S. and China, respectively. U.S.-Canada trade relations are also in focus ahead of a U.S. deadline for a new Nafta deal by Oct. 1. Downside appears somewhat limited for the Canadian currency with market odds showing a more than 80% chance of a local rate hike next month.