forex outlook

Apr. 22, 2019 (Western Union Business Solutions)  – FX markets remained in holiday mode with parts of the world observing Easter Monday. With a good chunk of the market closed, the U.S. dollar and big peers from Europe and Japan barely budged. Oil currencies like the Canadian dollar outperformed as crude pushed to new highs above $65 on reports that Washington is trying to impede Iranian exports. The Aussie and kiwi dollars weakened along with emerging markets. With the greenback little changed, it kept around multiweek highs scaled last week in the wake of rosy news on the U.S. economy which contrast fresh signs of weakness across the Atlantic. Data is likely to hold the keys to FX action this week, with attention on German business confidence Wednesday and U.S. first quarter growth Friday. The Bank of Canada Wednesday is widely expected to keep interest rates unchanged.

EUR

The euro favored multiweek lows in quiet holiday trade. Much of Europe is on a long holiday weekend for Easter. Once back from the break, Germany’s beleaguered economy will remain under the microscope. While chronic German weakness has weighed on the euro, any good news this week on Europe’s biggest economy might allow the single currency to rebound. Germany’s Ifo index of business morale on Wednesday is forecast to rise for a second straight month.

GBP

Sterling has descended toward the bottom of its range amid a revival in the U.S. currency. Meanwhile, the specter of several more months of the Brexit impasse dragging on has done little to whet appetite for the U.K. currency. The pound’s decline has it within a fraction of a cent away from technically important levels like its 200-day moving average. That level could act as a solid floor but if it gives way it could set the stage for accelerated losses over the short run.

CAD

Canada’s dollar rose in otherwise light holiday trading, getting a lift from oil topping $65, a new 2019 high. Other than that, many traders kept to the sidelines with Europe on a long Easter holiday weekend while others held off on meaningful wagers until the Bank of Canada issues its policy decision Wednesday. Slower growth of late suggests that Canada’s central bank will leave its benchmark interest rate at 1.75%. A status quo, cautionary statement would fit with the narrative of steady borrowing rates this year, a scenario that would likely keep USDCAD confined to its current range.

 

 

 

 

 


USA 

Apr. 10, 2019 (Western Union Business Solutions)  – An action-packed Wednesday started with a subdued greenback. The euro held firm after the ECB left borrowing rates unchanged while sterling strengthened as EU officials meet to consider another Brexit delay. Oil near 2019 highs above $64 buoyed commodity currencies like the loonie and Aussie dollar. Norway’s currency rallied after hotter than expected inflation smoothed the path to higher interest rates. In addition to the European happenings, investors today will also scour U.S. inflation data and the minutes of the last Fed meeting. Today’s events could shed light on whether current central bank policies are appropriate or if officials may need to act to stave off a sharper slowdown. While positive for growth, lower interest rate tend to be negative for a currency by tarnishing its appeal to yield-chasers. Higher inflation and less dovish Fed minutes could boost the U.S. dollar.

The euro fell from multi-week highs after the ECB left interest rates unchanged and the post-meeting message from President Mario Draghi was a largely downbeat one. Mr. Draghi acknowledged that recent data had been weak and said that global weakness persisted. On the interest rate outlook, the ECB said that rates would remain anchored at crisis lows all this year with any increase coming no sooner than earlier 2020. Having strengthened in the run-up to the ECB meeting, the euro looks vulnerable to renewed declines given the still-weak backdrop for the bloc.

A potentially crucial day in the road to Brexit started with a gain for the U.K. pound. Theresa May is in Brussels asking the EU for another Brexit delay. Reports suggest another delay could come with strings attached such as a lengthy delay to late 2019 or early 2020. While a long delay would only prolong the uncertainty, it would also eliminate the risk of Britain crashing out of the EU without a deal as soon as Friday, the scenario supporting the pound at the moment.

The loonie was stable, though below multiweek highs reached a day ago. Oil was also steady near fresh 2019 peaks above $64 which bodes well for commodity-linked currencies. The loonie is consolidating ahead of crucial central bank events in the U.S. and Europe.

The dollar pared declines after headline consumer prices accelerated more than expected. The CPI rose at an annual rate of 1.9% in March, above forecasts of 1.8% and February’s 1.5% increase. Core inflation slowed a tick to 2%. The data’s message to the Fed: stay patient. Inflation running at or near the Fed’s 2% sweet spot should help to reduce the likelihood of a dollar-negative interest rate cut. For more clues on the policy outlook, look to today’s minutes of the last Fed meeting due at 2 p.m. ET. A status quo message that emphasizes steady rather than lower rates could translate into a dollar tailwind.

 

Apr. 8, 2019 (Western Union Business Solutions)  – A big week for Europe got off to a positive start for both the euro and sterling. America’s dollar softened which lent support to commodity rivals like Canada. The weaker U.S. currency allowed oil prices to push to five-month highs above $63. Last week’s U.S. jobs report did little to excite dollar bulls as slower wage inflation suggested the Federal Reserve was all but done raising interest rates. And while hiring bounced back smartly with a gain of nearly 200,000 in March, the pace of job growth slowed over the first quarter to a monthly average of 180,000, down from the 223,000 it averaged last year. Wednesday is a big day this week when the EU holds a Brexit summit, the ECB issues a policy decision and President Mario Draghi holds a news conference, and the Fed releases the minutes from its last meeting.

Nothing like caution ahead of an ECB meeting to ease pressure on the euro. Europe’s single currency rose above one-month lows as investors pared bearish bets ahead of Wednesday’s ECB decision. While no changes to policy are expected this week, the main focus will be on how dovish the ECB president sounds in the wake of area inflation falling to a danger zone below 1%. The euro could bounce higher if Mr. Draghi signals that its current policy prescriptions of rock bottom interest rates are enough to spur an economic rebound in the months ahead.

Sterling ticked higher ahead of a week that could see heightened volatility. Britain’s leader, Prime Minister Theresa May, is holding crunch Brexit talks with the opposition Labour Party to try to forge a compromise deal ahead of an EU summit on Wednesday. That’s when Mrs. May hopes the EU will accept her second request to push back the Brexit deadline, this time to June 30 from April 12. But if a compromise deal with Labour remains elusive, it would keep alive the risk of Britain crashing out of the EU without a deal as soon as Friday, the dire scenario that could potentially fuel a significant slide in the U.K. currency.

A weaker U.S. dollar extended a hand to the loonie which rose out of its biggest hole in a week. Fresh signs of a moderating Canadian economy could make gains tougher to sustain for the loonie, however. That’s because Canada’s employment report last week showed a surprise loss of jobs. Consequently, the Bank of Canada appears less likely to veer from its cautious rate path anytime soon. The BOC next meets on April 24, when it is all but certain to keep borrowing rates unchanged at 1.75% amid economic uncertainty at home and abroad.

The buck got off to a sluggish start to the week after mixed jobs data last week did little to quash chances of the Fed cutting interest rates by year-end. Stronger hiring is always welcome but dollar bulls took exception with weaker wage growth, an outcome more conducive of steady to lower interest rates than higher ones. The buck’s sights this week will be on European developments on Brexit and the ECB, and Wednesday events like the minutes of the last Fed meeting and consumer inflation which is forecast to accelerate.

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.

 

 

Mar. 15, 2019 (Western Union Business Solutions)  – The EUR and other major currencies rallied and the USD came under pressure in the aftermath of the Federal Open Markets Committee’s decision to leave the Fed Funds Rate at 2.25% to 2.50% and to refrain from raising interest rates this year.

Below is the official Federal Open Markets Committee statement:

“Information received since the Federal Open Market Committee met in January indicates that the labor market remains strong but that growth of economic activity has slowed from its solid rate in the fourth quarter. Payroll employment was little changed in February, but job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Recent indicators point to slower growth of household spending and business fixed investment in the first quarter. On a 12-month basis, overall inflation has declined, largely as a result of lower energy prices; inflation for items other than food and energy remains near 2 percent. On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; Esther L. George; Randal K. Quarles; and Eric S. Rosengren.”

 

 

Mar. 15, 2019 (Western Union Business Solutions)  – The U.S. dollar softened anew Friday, something it’s done for the better part of the week. The greenback was mildly lower against the euro, yen and Canadian dollar. Sterling steadied after a Brexit-induced roller coaster week, while the Aussie, kiwi and emerging markets strengthened. While flat Friday, sterling was the week’s star performer after the latest Brexit developments suggested a lower risk of Britain crashing out of the EU without a trade agreement. The U.K., albeit in principle, ruled out a messy, no-deal exit and voted to push back its March 29 departure from the bloc. Sterling’s nearly 2% rise this week was on track for its best performance in almost two months. The buck’s nearly 1% decline this week was on pace for its worst week of the year. Signs of a moderating U.S. economy weighed on the dollar ahead of next week’s all-important Fed meeting.

 

 

Euro creeps higher

 

The euro was little changed Friday but on track to eke out a weekly gain against its U.S. rival. The euro cleared short-term resistance this week when it climbed to one-week highs. However, fundamental forces amid a weak European economy and the ECB postponing rate increases have capped upside for the single currency. Data today confirm an anemic 1% rate of core inflation, a stubbornly low level that keeps policy normalization off the radar.

 

 

Sterling firm after bullish week

 

Sterling was flat after a roller coaster week in which it soared nearly 2% to nine-month peaks. The pound’s performance weekly performance was on track for its best in nearly two months. The pound outperformed after the latest Brexit developments suggested a lower risk of Britain crashing out of the bloc in disorderly fashion. The U.K. voted against a no-deal exit and decided to ask the EU for a later departure from the bloc. Still, the thick fog of uncertainty that Brexit represents hasn’t changed much, a factor that could keep the pound on an unpredictable near-term path.

 

 

Oil weighs on loonie

 

Canada’s dollar tracked oil markets lower Friday. For the week, USDCAD was poised for a decline which allowed the Canadian dollar to rebound from two-month lows. Oil’s push to 2019 highs petered out, with crude down more than a percent and below $58. Key for the loonie next week will be a midweek U.S. central bank decision and late week numbers on Canadian inflation and consumer spending. Further signs of a moderating Canadian economy would bode well for USDCAD.

 

 

Dollar slips, Fed in focus 

 

The dollar index was on pace for its worst week of the year as tepid inflation reinforced the Fed’s steady outlook for monetary policy. Data today on factory growth and the Empire State index also underwhelmed. Consequently, the Fed next week is likely to keep in wait and see mode on interest rates, a cautious stance that’s checked the dollar’s rise. The Fed on March 20 will also issue fresh projections for the economy and interest rates. For the buck to sustain its underlying bullish bias, the Fed would need to keep the door ajar to a rate hike by year-end.

 

Mar. 11, 2019 (Western Union Business Solutions)  – The greenback tiptoed into the new week as it treaded carefully ahead of important news on the U.S. consumer. The buck was broadly flat against the euro, yen and Canadian dollar. Sterling was on a fragile footing ahead of crucial votes this week in the U.K. Parliament on Brexit. The dollar scaled new highs last week after central banks played down prospects for higher interest rates. Canada’s dollar hit a two-month low while the euro slumped to its weakest since mid-2017. The coming week should shed light on how much dollar strength of late stems from weakness in rival currencies. America’s data calendar will shine a spotlight on the economy-driving consumer with retail sales today and consumer inflation Tuesday. The buck would be vulnerable to further signs of economic fatigue after data last week showed the weakest hiring in more than a year.

 

 

Euro close to 20-month lows

 

A fragile euro was less than a cent away from 20-month lows against its U.S. rival. Germany today released another batch of lackluster data that validated the ECB’s decision last week to postpone higher interest rates and offer more support to the economy. German industrial orders unexpectedly slid while the nation’s trade surplus narrowed, setting the stage for another weak quarter of growth during the January-March period.

 

 

Crucial week for Brexit, sterling

 

Sterling fell to three-week lows overnight on uncertainty over what this week’s crucial votes in Parliament might mean for Brexit. The voting kicks off in Parliament Tuesday when lawmakers will decide on the fate of the prime minister’s Brexit deal with the EU. Failure to pass Mrs. May’s plan, a scenario that appears a near certainty, would trigger another vote Wednesday on whether to pursue another deal or no deal at all. A potential third vote looms Thursday when Parliament could decide whether to delay Brexit beyond the current date of Mar. 29.

 

 

Flat loonie pinned near multimonth bottom

 

Canada’s dollar steadied, albeit near two-month lows, as it found tentative support from last week’s bullish jobs report. Friday data revealed that Canada went on a strong hiring spree for the third time in the last four months. The jobs data suggested a lower risk of the next move from the Bank of Canada being a rate cut from 1.75%. Oil gained 0.5% early Monday to above $56, an increase that also buoyed commodity-influenced currencies.

 

 

U.S. retail sales rise after dreadful December

 

The buck had little reaction to better than expected news on the U.S. consumer. Retail sales topped forecasts with a 0.2% increase in January, compared to forecasts of a flat reading. Core spending also surprised to the upside with a zesty 1.1% increase. The buck’s muted response stems from how poor spending the month before fit with the narrative of the economy losing altitude into the new year,  a scenario that should keep U.S. interest rates grounded over the foreseeable future. Low rates for longer are negative for the buck’s appeal to those seeking higher returns.

 

 

Mar. 7, 2019 (Western Union Business Solutions)  – The euro slipped to three-week lows after the ECB left borrowing rates unchanged and announced a new easing plan to help spur faster bank lending to help resuscitate Europe’s sputtering economy. Starting in September, the ECB will launch a new round of cheap loans to banks and continue the program through March 2021. The ECB also pushed out its forecast for an eventual rate hike from after the summer to after 2019, at the earliest. That means that Mr. Draghi is poised to go his entire presidency without firing a single rate hike. The euro slid on the news and could add to its losses if the market senses the central bank is running low on tools to turn the economy around. Mr. Draghi speaks soon, remarks that will be important for currencies.

 

Brexit uncertainty pressures sterling

 

Sterling favored one-week lows amid a lack of progress on the Brexit front. Britain’s Parliament is due to vote again on Theresa May’s Brexit deal on Mar. 12. Weeks of negotiations with the EU have largely left the prime minister’s divorce deal little changed, suggesting doubts in Parliament passing it. The Brexit impasse suggests that Britain would inevitably be forced to delay its exit from the bloc to beyond Mar. 29, a scenario that would do little to lift the fog of uncertainty.

 

Loonie steadies around 2-month low

 

Canada’s dollar steadied after a central bank-inspired tumble to two-month lows. A subtle but significant shift in the outlook for Canadian interest rates reawakened loonie bears who have largely been in seclusion this year. The Bank of Canada left interest rates unchanged at 1.75% as expected and watered down expectations for a hike anytime soon given the surprising weak shape of the Canadian economy, one that it now expects to moderate further over the first half of the year. Canada’s dollar will look for direction from the job market Friday. Hiring is forecast to stall after robust gains over two of the past three months.

 

Dollar rolls to new highs after Draghi, data

 

The dollar index climbed to three-week highs, getting a double boost from the ECB’s dovish turn and better than expected U.S. jobs data. Weekly jobless claims improved more than expected with a decline to 223,000 in the latest period. The data was consistent with the job market firing on all cylinders ahead of tomorrow’s government employment data. The buck is weathering the Fed’s patient rate stance which is being offset as more and more central banks turn increasingly dovish.

 

Mar. 1, 2019 (Western Union Business Solutions)  – The U.S. dollar made a mixed start to March. On the bright side, the U.S. currency pushed to 10-week highs against the yen and rebounded from seven-month lows against sterling. However, risk-on sentiment amid a global stock rally worked in the favor of the euro and commodity rivals like the loonie, Aussie and kiwi dollars. Rising Treasury yields have pulled the greenback out of its biggest hole in weeks. Evidence of still-solid U.S. growth lifted the yield on the benchmark 10-year bond above 2.70%, accentuating the dollar’s allure in a low rate world. The euro steadied as a mix of good and bad economic news from Europe largely counterbalanced. Sterling was on track for its best week in a month, though a bout of profit-taking keep it below mid-2018 highs. A potential catalyst looms for the greenback today in influential U.S. data on the consumer and inflation.

 

Data leaves euro uninspired

 

A mixed bag of European data offset to leave the euro little changed. Unemployment in the 19-country bloc steadied at 7.8% in January, the lowest in more than a decade. Higher energy lifted overall inflation by a tick to 1.5% in February. But the more reliable and less volatile gauge of core inflation weakened to 1% from 1.1%. Lower underlying inflation will dial up pressure on the ECB to consider offering stronger monetary support to its lackluster economy. The central bank meets next week when it’s expected to leave its main lending rate unchanged at zero. The ECB also will provide fresh economic forecasts. Any downgrade to the growth outlook would raise an already elevated bar for the ECB to raise interest rates later this year, a scenario that could tighten the lid on the euro.

 

Sterling poised for 2nd weekly gain

 

Sterling surrendered part of a rally that hoisted it to July 2018 highs against the greenback as traders took profit on its 2-cent rise over the week which was on pace for its best weekly performance in a month. The latest Brexit developments suggested Britain would avoid a nasty no deal exit later this month. Meanwhile, odds of Britain choosing to delay its Mar. 29 departure increased. As for Britain’s economy, a gauge of factory growth slowed in February, underscoring the urgency for Britain to avert an ugly no deal withdrawal from the EU.

 

Loonie tumbles after dreadful data

 

The loonie entered March like a dove after shockingly weak data kept higher rates off the table and out of sight. Canada’s economy slowed to a 0.4% annual rate in the fourth quarter, which missed forecasts of 1.2% by a longshot. Growth last quarter was the slowest in two years and down sharply from the 2% pace during the third quarter. On a monthly basis, growth contracted in December for a second straight month. The data cemented expectations for the Bank of Canada on Mar. 6 at 10 a.m. ET to leave interest rates unchanged at 1.75%. Moreover, the sharp slowdown could also give rise to talk of the next move in rates being a loonie-negative cut.

 

Steady inflation supports dollar

The dollar kept positive in the wake of mixed data on the U.S. economy. Consumer income and spending both contracted in December. But the good news was on inflation as core prices steadied at 1.9%, keeping in close proximity of the Fed’s 2% bullseye. Today’s data should keep the Fed sidelined over the foreseeable future. Still, stable inflation near the Fed’s goal will keep the door open to higher rates, the chief catalyst behind the dollar’s outperformance. Next week: Nonfarm payrolls.

 

 

 

Feb. 11, 2019 (Western Union Business Solutions)  – Elevated global risks kept the safer U.S. dollar well supported. Extending an upswing, the trade-weighted Dollar Index climbed to early January highs thanks to across the board gains versus rivals from Europe, Canada and emerging markets. The Swiss currency was a notable mover as it depreciated by nearly a franc in a matter of minutes overnight that knocked the Alpine unit to mid-November lows. The dollar continues to find a supporting cast from worries about a slowing world economy and uncertainty related to Brexit and U.S.-China trade talks. The buck also made headway versus the yen which fell to fresh 2019 lows. The dollar wavered weeks ago after the Fed turned decidedly cautious and closed the door to imminent interest rate hikes. The dollar has since gained traction given the lack of an alternative to the greenback which remains well supported by solid fundamentals which contrast slowing growth overseas.

 

GBP

 

Uninspiring U.K. data drove sterling toward recent multiweek lows against its American counterpart. As expected, Britain’s economy slowed to a 0.2% pace during the fourth quarter from a 0.6% rate in Q3. Data on trade and factory growth underwhelmed forecasts which offered evidence of how Brexit uncertainty has squeezed the economy. Look for the coming week to shed some light on the next steps in the Brexit process with a midweek update to Parliament by the prime minister. Data Friday is forecast to show U.K. retail sales inched up after a December plunge.

 

EUR

The euro slid to a Jan. 24 low against the greenback, its weakest in more than two weeks. Europe’s faltering economy will stay in the spotlight this week which could leave the single currency vulnerable. Thursday will be critically important with numbers due on German and euro zone growth during the final quarter of 2018. Top economy Germany already has one foot in recession after it contracted by 0.2 during the third quarter. Odds are seemingly on Germany’s side that it may dodge recession with fourth quarter growth expected up by a scant 0.1%. Any disappointing data could potentially be the euro’s ticket lower.

CAD

 

Canada’s dollar was broadly flat though weaker oil prices, if sustained, could leave the commodity-driven currency at risk in the day ahead. The loonie pared weekly declines Friday after bullish Canadian jobs data kept a local interest rate hike in the conversation. Canada netted more than 60K jobs last month, an amount about 10 times stronger than expected. Despite the sharp spike in hiring for the second time in three months, money markets still see a relatively slim chance (i.e. around 20%) of a rate hike from 1.75% by year-end.