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Greenback Defensive on Trade Optimism and Brexit Draft Deal

Currency-Market-Update-Wednesday-2
Albert Edwards
by Albert Edwards on October 16, 2019

CURRENCY MARKET UPDATE

U.S. Dollar Highlights:

USD stable as risk sentiment is positive and markets will now focus on Q3 corporate earnings. After last Friday’s trade truce with China, concerns about additional tariffs have been reduced. Meanwhile, President Trump suspended a planned tariff hike after stating Beijing would buy up to $50 billion USD worth of American farm goods. However, China warned that the two sides have not put last week’s agreement on paper. China also announced a timetable to abolish limits on foreign ownership of some finance businesses and said this had nothing to do with trade talks and not a concession to President Trump’s administration. The Federal Reserve’s measure of inflation expectations dropped to 2.4% in September (from 2.5% in August and the lowest since 2013). All eyes on the September Retail Sales report (available tomorrow) and Manufacturing Production (available Thursday).

Canadian Dollar Highlights:

CAD defensive after oil prices dropped due to a weaker global growth outlook. The ongoing U.S.-China trade war is affecting demand and crude supplies; meanwhile, the International Monetary Fund cut its 2019 global growth forecast for a fifth time (to a decade low 3%). Deceleration in U.S. and China is affecting global growth due to trade tensions hurting expansion. The chances of the Bank of Canada cutting interest rates later this month reduced to 7% (from 9%). All eyes on the September CPI today (expecting 2.0% yearly and previously 1.9%).

Euro Highlights:

EUR weaker after the German ZEW survey was -22.8 in October (and -23.5 for the Eurozone). Positive Brexit headlines and USD lower providing some support for EUR after a draft Brexit deal may be completed soon. Chief negotiator Michel Barnier said a Brexit deal could still be reached; however, European Union officials and Ireland Prime Minister Leo Varadkar said it was too early to discuss a deal before the upcoming summit. All eyes on the September CPI report today (expecting 0.9% yearly and previously 1% in August).

British Pound Highlights:

GBP stronger as markets are optimistic about the chances of a last-minute Brexit deal (already priced in). European Union Chief negotiator Barnier said that the current proposals were not good enough, but he is ready for Prime Minister Boris Johnson’s next attempt to finalize a legal document before the European Union summit on Thursday. Meanwhile, unemployment rate for August increased to 3.9% (from a 45-year low of 3.8% previously in July). The U.K. lost 56K jobs (versus 26K gain expected) and this was the most in four years. All eyes on the September CPI report today (expecting 1.8% yearly and Retail Sales available tomorrow (expecting 0% monthly and 3.2% yearly).

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