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Greenback defensive on positive risk sentiment – all eyes on Canada Federal Election and BoC

Currency-Market-Update-Tuesday-1
Albert Edwards
by Albert Edwards on October 22, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD lower as markets deal with Brexit uncertainty (again) but risk sentiment improves. The U.K. government plans to go forward with its plans to get Brexit approved after parliament postponed a decision last weekend. Meanwhile, China’s top trade negotiator Vice Premier Liu He said they are making “substantial progress” in trade talks and “the negotiations were building a foundation for signing a phased agreement”. Presidents Trump and Xi Jinping agreed to halt any new tariffs (for now) while discussing a deal. Trump also said he hopes to sign a “Phase 1” agreement with Xi when they meet at the summit in Chile next month. Existing Home sales for September available today and New Home sales available Thursday.

Canadian dollar highlights:

CAD stable as markets prepare for the results of the 43rd Federal election. A minority government by the Liberal or Conservative parties is possible; however, a Conservative win may strengthen CAD (due to a promised reduction in regulation and constraints for the oil industry). Markets will also focus on the Bank of Canada’s latest Business Outlook Survey as global growth risks have reduced and provided more support for CAD. Retail Sales for August expecting 0.2% monthly and 0.9% yearly today.

Euro highlights:

EUR stable and vulnerable to Brexit developments currently. The European Union said they would approve a short Brexit extension if the U.K. needed more time to approve. Meanwhile, central bank President Mario Draghi will hold his final press conference on Thursday after the latest monetary policy announcement. A new round of bond purchases (€20 billion per month) will start in November to boost growth and inflation (due to global trade tensions and Brexit uncertainty). Germany, France and the Eurozone manufacturing and services index reports also available on Thursday.

British pound highlights:

GBP steady after the passing of the Letwin amendment which requires a final legislation on Prime Minister Boris Johnson’s Brexit deal with the European Union before a vote. In case the government fails to enact the laws to avoid a no-deal Brexit, Johnson also requested an extension of article 50 until January 31. Parliament will vote again this week and Johnson may receive the necessary majority to pass the agreement. If parliament approves the withdrawal bill, GBP will strengthen. Markets have reduced the chances of a no-deal Brexit to also support GBP.