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Foreign Exchange Report 12 December 2018

EURUSD
The German ZEW investor confidence index strengthened to -17.5 for December from -24.1 previously despite a dip in the current conditions component which suggested the potential for a gradual improvement in the German outlook. The US NFIB small-business confidence index declined to a 7-month low of 104.8 for November from 107.4 previously as optimism surrounding expectations declined, although there was further upward pressure on wages and prices. The Euro pushed to highs of 1.1400 before fading again as German yields reversed initial gains to trade lower on the day. US producer prices increased 0.1% for November compared with expectations of unhanged and underlying prices increased 0.3%. The data had some impact in stabilising inflation expectations which underpinned the dollar. The Euro continued to lose ground as investment funds maintained long dollar positions. Confidence in European currencies also deteriorated further as Brexit fears again infected the Euro and French-German yield spreads widened due to on-going French political protests. The Euro found some support near 1.1300 and edged higher with markets waiting for Thursday’s ECB meeting and Wednesday’s latest US CPI inflation data for further evidence on potential market trends.

JPY
Chinese new-loans data was slightly above consensus forecasts for November and well above October levels while annual money supply growth was unchanged which helped underpin global risk appetite even with underlying caution. There was also a slightly more optimistic tone surrounding US-China trade talks after a report that a proposal to cut tariffs on US car exports to China had been submitted to the Chinese cabinet. There was choppy trading in US equities as all main indices dipped into negative territory at one point, although a rally pushed the dollar to near 113.50 amid increased support. President Trump was optimistic over talks with China and suggested he would intervene in the Huawei situation if it helped close a deal with China, although he also openly called on the Federal Reserve not to increase interest rates at next week’s policy meeting. With US equity futures higher and bond yields holding Tuesday’s gains with the 10-year yield around 2.89%, the dollar held close to 113.50 on Wednesday as regional equity markets also made hesitant gains.

GBP
UK unemployment remained at 4.1% in the 3 months to October, in line with consensus forecasts while there was a larger than expected increase in jobless claims of close to 22,000 for November. The annual increase in weekly average earnings strengthened to an 8-year high of 3.3% from an upwardly-revised 3.1% with the underlying increase also at 3.3% from 3.2%. The data maintained underlying pressure for gradual interest rate hikes, although political developments dominated. The government stated that the Brexit vote would be brought back to parliament by January 21st. Prime Minister May embarked on a European tour in in an attempt to secure concessions from the EU, There was no sign of movement from EU officials on fresh negotiations, although there were hints that there would be fresh wording on the backstop to provide reassurance that it would not last indefinitely. Sterling declined sharply late in the European session following reports that there were enough letters to mount a leadership challenge on May and underlying instability continued to undermine sentiment although there was no official confirmation of a vote. Sterling dipped to 20-month lows below 1.2500 while the Euro bounced from 0.9000 and touched fresh 3-month highs above 0.9060 with UK weakness persisting on Wednesday.

CHF
The Euro secured a limited recovery in European trading, but gains were limited and short lived with the single currency losing ground again later in the day with a slide below 1.1250. The franc was resilient even with gains in global equity markets and a slightly firmer tone surrounding risk appetite as European political stresses continued to underpin defensive demand. The dollar moved back above the 0.9900 level on wider gains with markets still assuming that the National Bank would maintain interest rates at -0.75% following Thursday’s policy meeting.

Regards All.

Posted in Fx Market

Foreign Exchange Report 11 December 2018

EURUSD
The Euro maintained a firm tone in early Europe on Monday, but failed to challenge 1.1450 against the dollar and selling increased sharply later in the session. The Sentix Euro-zone confidence index dipped sharply to -0.3 for December from 8.8 and well below consensus forecasts. The data maintained concerns surrounding the growth outlook, although political events dominated later in the session. Severe tensions surrounding the UK political outlook and fresh fears surrounding Brexit also had an important impact in weakening Euro confidence and the single currency quickly dipped below 1.1400. US JOLTS job-openings data remained strong at 7.08mn for October from 6.96mn previously and continued to indicate a tight labour market. The dollar was still unsettled by a downgrading of 2019 interest rate forecasts, especially with a further tightening of financial conditions, but the US currency gained fresh defensive support as global equity markets declined and European confidence deteriorated. The Euro gained an element of support from reports that Portugal had repaid all its IMF loans, although it still dipped to lows near 1.1350 as the dollar maintained a firm tone. CFTC data recorded an increase in net speculative long dollar positions to near 2-year highs, maintaining the potential for US liquidation if there is a sustained shift in sentiment. The dollar edged slightly lower on Tuesday with domestic concerns and global factors vying for dominance.

JPY
After finding support below 112.50, the dollar maintained a resilient tone ahead of the New York open even though US equities came under renewed selling pressure and Treasuries also traded slightly higher with the 10-year yield near 2.83%. The US currency did hit selling interest above 113.00, although it was again resilient given the underlying market stresses. The dollar advanced to fresh highs near 113.30 late in US trading as equity markets rallied following some positive rhetoric surrounding US-China talks with talks between key officials, although there was again speculation that the US Administration was looking to directly influence Wall Street indices. The Japanese Finance Ministry reiterated that talks on trade and currencies should be kept separate. CFTC data recorded a further increase in yen shorts to 8-week highs, maintaining the risk of a US currency retreat if there is a sustained slide in risk sentiment. Markets also remained wary over domestic US political tensions, although the dollar held just above 113.00 in early Europe with defensive support still a significant factor.

GBP
UK third-quarter GDP data was in line with consensus forecasts and unrevised at 0.4%, although industrial production was weak as a slide in car output hurt activity. The data impact was limited as political developments quickly dominated markets. Sterling briefly ticked higher after the European Court of Justice confirmed that the UK could unilaterally revoke Article 50. During the European session there were reports of an emergency Cabinet meeting and sources indicated that Tuesday’s scheduled Brexit vote in parliament would be postponed. Concerns surrounding government weakness intensified and Sterling came under sustained selling pressure as market confidence crumbled. The government confirmed that the Brexit vote would be delayed with May looking to secure additional reassurances from the EU over the Irish backstop issue. After a brief respite, Sterling declined sharply again during Prime Minister May’s statement to parliament with 20-month lows near 1.2500 against the dollar while the Euro pushed to 3-month highs near 0.9090. Sterling secured only a limited correction and traded below 1.2600 with wariness over the risks of a no-confidence vote in May and de-stabilising political divisions.

CHF
The Swiss franc secured fresh gains during Monday as global risk appetite deteriorated once again. The Swiss currency also secured fresh support from turmoil surrounding European political developments, especially given fresh concerns surrounding the Brexit outlook which undermined confidence in European assets. In this environment, the Euro declined to lows below 1.1250 against the Swiss currency while the dollar was unable to gain significant support and consolidated close to the 0.9900 level. The franc held a solid tone even when US equities rallied sharply.

Regards.

Posted in Fx Market

Foreign Exchange Report 10 December 2018

GBP
The UK housing data was below consensus forecasts with a 1.4% monthly decline in the Halifax index holding the annual increase to 0.3%. Inflation expectations for the year ahead strengthened to 3.2% from 3.0% previously. During Friday, government sources continued to indicate that the parliamentary Brexit vote would go ahead on Tuesday despite strong pressure for the vote to be delayed given no evidence of a shift in sentiment within the House of Commons. Sterling was also hampered by weak global risk appetite and the Euro advanced to the 0.8950 area while there was some support on approach to the 1.2700 area against the US currency given wider US losses. Sterling remained on the defensive during Monday as political uncertainty dominated with fresh speculation that Prime Minister May would face a leadership challenge if the government loses Tuesday’s scheduled vote. Sterling did edge higher against the subdued US dollar, but there was a decline to 11-week lows against the Euro as it traded around 0.8975

EURUSD
Headline US non-farm payrolls increased 155,000 for November compared with consensus forecasts of around 200,000, while the October increase was revised slightly lower to 237,000. Manufacturing employment registered solid gains, although there was a slowdown in the construction sector. The unemployment rate was unchanged at 3.7%, in line with market expectations. Average hourly earnings increased 0.2%, slightly below expectations of 0.3%, although the year-onyear increase remained at 3.1%. The Euro pushed above 1.1400 on the release, although it again failed to sustain the move. Fed Governor Brainard stated that gradual rate increases are appropriate in the near term and expected solid growth next year, although she also commented that some of the tail winds are fading. The gradual rate path would also be increasingly dependent on the evolving US outlook. St Louis Fed President Bullard stated that rates were already above neutral and that rates should be held steady as the yield curve is signalling that the central bank has gone too far. Futures markets indicated one potential rate hike for 2019 which tended to sap dollar support and investment banks adjusted their forecasts. Although the Euro again pushed higher late in the session, there was further selling interest above 1.1400 as markets remained uneasy surrounding the European political outlook. The dollar remained under pressure on Monday as Fed expectations declined and the Euro advanced to around 1.1430 as markets monitored European political developments.

JPY
The dollar dipped lower after the US employment data, although moves were relatively contained with the labour market still seen as tight. US 10-year yields moved lower to near 2.85% which hampered US support, although it was still resilient. US equities continued to move lower into the European close and the dollar edged weaker, although it held above 112.50 against the yen. Selling increased late in the session as US-China concerns increased again, although the dollar continued to hold the 112.50 area as the stop-gap spending bill was signed while there were further internal White House tensions. Over the weekend, US Trade Representative Lighthizer stated that March 1st was a ‘hard deadline’ for progress in China talks. The latest Chinese export growth data for November was also below consensus forecasts at 5.4% which reinforced growth concerns. Japanese third-quarter GDP data was revised to -0.6% from the -0.3% reported previously, reinforcing demand concerns and the dollar tested support as global equity markets declined and US yields continued to edge lower.

CHF
The Swiss franc was resilient during Friday with the Euro unable to advance above 1.1300 despite gains elsewhere while the dollar retreated towards 0.9900 after the US employment data. The Swiss currency gained support from a fresh decline in US equities and caution surrounding wider risk conditions. Given recent franc strength against the Euro, there will be strong expectations that the National Bank will maintain interest rates at 0.75% at this week’s policy meeting. The dollar weakened further to near 0.9875 on Monday as the US currency remained subdued.

Regards.

Posted in Fx Market