Monday, June 12, 2017

U.S. Dollar dominates Pound and remains in tight ranges ahead of FOMC

USD
The U.S. Dollar is trading in choppy ranges after a weekend of mixed reaction to the UK snap election that has created such havoc for Prime Minister Theresa May. All eyes are on Britain as traders try to interpret what a hung parliament will mean exactly to the Brexit negotiations that initiate in a week.
The European lawmakers were not going to make things easy for PM May and now she has to worry about even maintaining her job. It is likely she will have a lifeline through minority parties and form a government, but it won’t be a strong coalition and it’s certain markets are losing faith in her.
No data out today for the U.S., but the week shall be crucial for dollar direction as the FOMC announces its much-expected hike on Wednesday. It is already priced-in that the Fed will increase rates, but the narrative thereafter is what concerns market participants the most. Sales and manufacturing gauges throughout the week will impact the overall story of potential greenback strength or argue that there are stagnant indicators keeping the Fed hesitant to hike after June.

EUR
The Euro picked up steam after Friday afternoon and remained afloat overnight following good news for the established European order in France and Italy. Elections to the national congress are going well for French President Emmanuel Macron after some seats gained by moderates. The final round will be next Sunday and we’ll see if Macron solidifies a helpful coalition in the legislature. 
Meanwhile in Italy, the Five-Star Movement, the anti-Euro party, suffered momentum loss by failing to get enough votes to go to a second round of voting in very populated regions such as Genoa. No electoral reform was passed, which means a snap election is highly doubtful in Italy this year, thus lowering the political uncertainty of the Euro-bloc. We expect Euro to potentially flourish slightly this week.

GBP

The Pound remains vulnerable and fell another half percent because of the surprising results of the elections last week. The Prime Minister had to assign some hardcore Brexiteers to her cabinet, hoping to win the graces of highly upset Conservatives who are concerned Brexit negotiations are escaping their grasp.
May is still arduously working to build enough of a coalition to have a government, but the drama behind the election casts doubt on her influence. This week will be imperative for her to coordinate an ability to still rule, but Labour and even Liberal Democrats are set to have their say be heard. We see Pound trending downward the next few days as this all gets settled. 

Thursday, June 8, 2017

U.S. Dollar slightly better against EUR as Draghi sets dovish tone

USD
The U.S. Dollar is trading in mixed ranges in anticipation of an eventful day. Against its major counterparts, the “buck” gained overnight while losing to neighborly Canadian Dollar and Mexican Peso. The former improved based on a strong surge in home prices, the best in a few decades in Toronto, and the latter on Banxico’s move to set the FX rate, which has strengthened based on less concern over a potential cancellation of NAFTA and increased value as a carry-trade currency. It is worth noting that Mexico’s central bank is focused on combating strong inflationary growth with increments in their interest rates.
In terms of data, Jobless Claims in the U.S. came in just slightly above expectations and the last figures were revised upward. I believe it is safe to say labor sector is solid on that front. All eyes will be on the testimony by terminated former FBI Chief James Comey whose words might spark some interest. Meanwhile, in Britain, the people will vote and the Conservative Tories will be biting their nails after a late-campaign poll surge for Labour. Reaction on GBP/USD will be monitored, election results clear on Friday.

EUR
The Euro seemed bound to gain this morning, but reaction thus far has been muted to the removal of guidance on interest rates being cut any further in the future. This means that the ECB officials see no need to continue on a rate-cut path, but the issue of downgrading the inflationary forecasts for the next two years had a negative impact on the shared currency. President Mario Draghi did not speak with a highly optimistic tone while still pointing out that economic growth is now more balanced.
His presentation focused on the need for fiscal measures and financial reform that can result in much more sustainable advancement for the Euro-bloc. Since inflation remains subdued, the ECB will exercise patience and the wait-and-see approach will stay to keep an accommodative monetary environment. EUR is about half a percent lower than yesterday.

GBP

The United Kingdom is out to vote once again. Prime Minister Theresa May is hoping to have a firmer grasp of the legislative branch if her party achieves a larger majority within Parliament. Nevertheless, recent polls cast doubt on the Tories’ ability to even hold on to some of their seats, which could prove crucial to maintaining the advantage they currently hold.
The British have put up with a terrible campaign season from both sides that have increased anxiety over Brexit and also the future of some key social programs. On top of it, there is a sense of insecurity like never before after awful acts of terror tied to Islamist extremism. We will see the reality of the outcome sink in tomorrow when all votes are counted, but we sincerely wish that everything goes smoothly and that the population faces no threats to their democratic duty.  

Wednesday, May 31, 2017

U.S. Dollar reverses gains as Pound and Euro climb back 

USD
The U.S. Dollar is trending in weaker ranges this morning despite underwhelming data out of Europe and renewed uncertainty over politics in the United Kingdom. European markets flourished as they come to a close although inflation numbers from Germany and the Euro-bloc as a whole grew less than expected at 1.4% under the estimated 1.5%, and lower than the desired 2.0% target by the European Central Bank.  This slowdown would help ECB President Mario Draghi’s argument to maintain easing as a tool to help the continent, but the Euro is not declining as you would expect off of policy divergence with the U.S. Fed.
Similarly, Sterling has held strong after new polling, using less traditional methods, showed that Prime Minister Theresa May’s Conservative Party could lose a majority in parliament. Britain is coping with insecurity as well as economic concerns revolving around Brexit. Nevertheless, both the Euro and the Pound are within less than half a percent from their highest levels of 2017.  
There are no major indicators out for the U.S. until tomorrow even as Chicago PMI and Home figures are slated for release today. Against commodity-based currencies, the greenback is likely to gain if oil prices continue to drop and dragging along other resources such as metals.

EUR
The Euro is up after mixed data that revealed improvements in the labor market, but inconsistency in inflationary growth as well as consumption. Germany in particular surprised with contraction in their Retail Sales and Italy continued its black sheep status as it experienced monthly deflation. Meanwhile, the unemployment rate for the Euro-bloc fell to 9.3% from 9.4%. The figures certainly leave many traders pondering if the ECB can indeed afford to start tightening its monetary policy.
On Monday, ECB President Mario Draghi spoke to lawmakers in Brussels about the need to maintain a cautious approach that remains open to intervention. Quantitative easing is working, even at a lower level, but cannot be forgotten altogether after this year when it’s scheduled to end. Long-term, this could weigh on the Euro, but traders are commenting that there is safety in investing in the EU considering the progress made in the past two years. Greece and Italy are dark clouds along with Brexit, which we believe will eventually negatively impact the value of the Euro significantly.  

GBP

The Pound’s resilience is remarkable as doubt builds over PM Theresa May’s ability to consolidate power. A YouGov poll, which conducts surveys differently from other sources, found that the Labour Party is closer in popularity to the Conservative Tories than previously thought.
The projection they came up with for the June 8th election would mean the ruling party would lose their majority, which is exactly what Theresa May wants to avoid and confidently believes will not happen. The call for the snap election is meant to be a power move to guarantee that whatever “Hard” Brexit strategy they bring to the EU would be law of the land. This new worry adds to volatility for the Pound, however, we are yet to see the negative effects against the dollar.  

Tuesday, May 30, 2017

U.S. Dollar recovers with good figures and worries in Europe & UK

USD
The U.S Dollar is trading in favorable ranges in comparison to last week following new developments affecting faith in the Euro and Pound. Policy divergence is also playing a role in advancing the “buck” as recent commentary from different Fed figures has almost guaranteed a second hike in interest rates at the FOMC meeting on June 14. Chances of a hike are at 95.0%.
This week will be busy in terms of data with Non-Farm Payrolls and the Employment Situation the most highly anticipated figures on Friday. The expectations are low, so a NFP reading above 200K shall be good for the dollar. Personal Spending and Income both rose and met their exact expectation of 0.4% expansion. Personal Consumption Expenditures, the Fed’s favored inflationary measure, also satisfied estimates. With focus on troubles elsewhere and potential return to good economic performance in the U.S, we feel the dollar could be up for some gains in the next few weeks.

EUR
The Euro improved by 2.4% over the course of May, benefitting tremendously from the relief felt around the continent as France elected Emmanuel Macron over the anti-EU candidate Marine Le Pen. Also, economic numbers impressed as it became clear that Germany could grow in the midst of instability and the recovery hoped for by the European Central Bank actually widened across borders. However, the shared currency could start facing some doubts as it deals with the details of Brexit talks, but more importantly, the struggles of Italy, its third largest participant.
The Italian government is voting to change party-eligibility rules and actually hold a general election before 2018. Established parties are shooting for this to pass because they feel that ongoing criticism over the bad situation in the country will only fuel popularity for the Five-Star Movement, the now more renowned opponent of the Euro and EU membership. Bank reform attempts have failed, the economy is slumping, and overall mood in the country is that things ought to change. This naturally bodes well for the dollar against the Euro in the next few months, but any slip on our side will continue to keep U.S. Dollar gains subsided.

GBP

The Pound had a very strong start to May, but has since dwindled by almost 1.0% as recent days came with negative headlines for the U.K. Aside from the terror that struck Manchester, Britain is now coping with pessimism over its Conservative administration.
When PM Theresa May announced the snap elections scheduled for June 8, her party held a 20.0% lead over the competition. Now it’s different, as that discrepancy has fallen to single-digits. The early obstacles in Brexit negotiations where the EU has looked determined to make the UK pay a heavy tolls prior to re-working trade, anxiety over big job losses down the line as companies leave, and geopolitical concerns are now weighing on Sterling.  

Thursday, May 25, 2017

U.S. Dollar hoping to end week strong as we await GDP  Friday

USD
The U.S. Dollar traded in choppy ranges yesterday as market participants digested the FOMC Minutes. It is clear that the Fed is resolute in its aim to hike rates twice more this year while keeping an eye on wages and inflation. Currently, policy divergence has kept the greenback relatively above water, but the Fed’s tools are limited when trying to push towards economic growth.
Tomorrow’s Gross Domestic Product, Personal consumption, and Durable Goods figures will paint a clearer picture of where the U.S. economy is this year and if indeed it can afford more than one hike in the interest rate. Also, the Fed is hopeful, as many other central banks, that government steps up and do their part with fiscal spending to boost progress.  Odds of a hike for June 14th are at 95.0%.
Jobless Claims, both initial and continuing, came in lower than expected; once again proving the labor sector is healthy, at least on paper. With no other data out today, we’ll see if any headlines out of the NATO Summit shake the FX market as strong statements are likely from European, UK, as well as American leadership.

EUR
The Euro’s momentum has been halted after remarks from European Central Bank President Mario Draghi that certify he is not ready to consider any tightening measures. As far as his speech in Madrid yesterday is concerned, the highest financial official of the EU does not feel any pressure to change his stance, which is one of keeping the easing going until end of the year.
While German and other leaders may disagree, it is important to point out that the ECB’s efforts are paying off as the recovery the continent desperately needed has widened. Although here we are some of the more adamant analysts when it comes to worrying about the ongoing debt problems with Greece and a vulnerable Italy for the long-term, the Euro is where it deserves to be considering economic advancement despite the fiscal issues that plague the Euro-zone and serious security concerns that were once unimaginable for the region.   

GBP

The Pound continues its rotten week following a downgrade to its revision of GDP growth for the first quarter of the year. Originally, the reading showed a 0.3% level of growth, but numbers reviewed revealed a slightly less productive quarter at 0.2%. Exports suffered and in general there was stagnation in other sectors.
With an ongoing investigation, political campaigning before the June 8th elections, and the dark cloud of Brexit, we foresee Sterling going down a bit in the next few weeks. Overall, we have little faith in Brexit talks resulting in a great situation for the UK and if indicators start dwindling, then more reason to believe GBP will depreciate in big way by year’s end. 

Wednesday, May 24, 2017

FOMC Minutes biggest event of the day, EUR & GBP declining

USD
The U.S. Dollar sustained most gains from its advance yesterday afternoon that developed in anticipation of the FOMC Minutes later today. It is expected that the notes will keep the odds of an interest rate hike high although the American economy has slowed its good data roll in the last few weeks. In comparison to other central banks, the Fed is resolute in increasing borrowing costs this year and tightening is monetary policy. For many banks with resistance levels for Euro and Yen, their large orders were filled yesterday as well after rapid rise in value for both currencies in the last week.
Technical talk aside, the UK’s need to cope with critical security threats added to the “buck’s” appreciation in times of uncertainty over terror. In addition, China’s credit rating was cut by Moody’s, the first time the world’s second largest economy has its debt lowered since 1989. This development could add pressure on resource-based currencies wishing for perpetual prosperity for their biggest buyer.
PMI Composite will be out later today at 9:45AM. Yesterday’s Markit surveys showed estimated expansion in services, but slowdown in manufacturing. Existing Home Sales will also be released at 10AM, but we believe statements from European Central Bank President Mario Draghi at 9:35AM will have more of an impact.

EUR
The Euro finally slipped after orders filled in and traders put emphasis on the FOMC Minutes release at 2PM that could subdue the shared currency’s recent revival. Nevertheless, the Euro is still trading around its strongest levels in six months. Economic data recently solidified that the Euro-zone is in better shape than last year and can afford to see the ECB ease off the gas pedal when it comes to intervening to incentivize growth.
Remarks with some frustration on Euro weakness by German Chancellor Angela Merkel and her Finance Minister Wolfgang Schauble manifest that the most vibrant nation feels the ECB could start tightening. Current interest rates from the ECB (benchmark at 0.0% and others in the negative) do not reflect the strength of the German economy and the drag on Euro has to be blamed partially on policy divergence. ECB President Mario Draghi will have a chance to express his stance later this morning and we will keep an eye on signs of negativity that could sink the Euro further.

GBP

Sterling is under major stress after the awful bombing in Manchester during an Ariana Grande concert. The loss of young lives and the involvement by ISIS created a strenuous situation for security forces and the government, which declared the country on high alert. The threat level was upgraded to Critical from Severe. With all campaigning shut down and Brexit talks fading from headlines, we see a quiet session for GBP, which may depreciate further as Britain recovers.   

Tuesday, May 23, 2017

Data in Euro-zone impresses. World mourns heinous act in UK

USD
The U.S. Dollar is trading in tight ranges as European markets flourished overnight following good news in terms of data out of the Euro-bloc. Stock indexes were mostly in the green worldwide and the dollar also surged slightly as a safe-haven to crisis. Unfortunately, on yesterday evening another senseless act took the lives of concert goers in Manchester and it seems that the attack is being claimed by the cowardly “evil losers” of ISIS. The greenback tends to gain during chaotic situations, such as terrorist attacks elsewhere, and Pound did indeed depreciate.
Markit Manufacturing and Services PMI are due later this morning and are slated to show a faster expansion than last month. New Home Sales will also hit the wire at 10AM. With economic figures and FOMC Minutes tomorrow, we shall see if the dollar regains some steam after experiencing its worst week in a year.

EUR
The Euro may have dwindled earlier as the North American markets awakened, but is now advancing as a result of stellar Purchasing Managers’ Index growth. The measure came in at 56.4 slightly over the expected 56.2, which represents its fastest pace of progress in six years. With distractions in Washington and divergent performance recently, the European markets are looking like a solid buy. Many traders agree that global investors are right to seek the less volatile situation in Europe; however, where we disagree is the long-term.
Italy is the third largest economy and the struggles are real, not just in banking, but in almost every aspect of the economy. The averages for several indicators would be higher for the Euro-zone if Italy wasn’t in such a dismal situation that involves a fragile political stage as well. 2017 may not play out to be a year when the Euro hits parity with the “buck,” but the closer we get to 2018, the closer we get to Italian general elections, the more pressure on the shared currency.

GBP

The Pound fell yesterday based on fear that Brexit talks may take a turn for the worse as UK officials vowed to reject any Brexit deal that forces payment of €100 billion or more to leave the EU. Nevertheless, the attack yesterday is likely weighing heavily on the country and the geopolitical concern of the negotiations may be set aside. There is no data and we will monitor if Sterling trends downward from the current havoc. Gross Domestic Product numbers will be out on Friday and any further momentum may manifest on the exchange rate then. 

Monday, May 22, 2017

U.S. Dollar continues weak run, oil prices spike, Euro above election-high

USD
The U.S. Dollar is trading in mixed ranges following a bit of news over the weekend affecting commodity-based currencies and solidifying the Yen. Oil prices surged dramatically as speculation grew that on Thursday OPEC will agree to extensive production cuts, driving up the prices of other commodities and thus boosting petrocurrencies and others such as MXN, CAD, NZD and NOK.
Meanwhile, the Yen extended its gains to 2.2% since the start of last week driven by uncertainty in global markets, underperformance in the U.S., and positive indicators from its shores. Gross Domestic Product advanced for the fifth consecutive quarter and speculation is that of expansion in manufacturing as well as other measures like PMI today.
Without any data today, we will see if any political headlines move markets and keep an eye on the Euro and Pound Sterling as they continue to surge into multi-month highs.   

EUR
The Euro reached its highest level since September 8th after a week when political downside risks started to fade for the shared currency and optimism gripped the continent. The European Central Bank may agree on maintaining an accommodative environment, but German Chancellor Angela Merkel feels that the Euro is a bit too weak.
After German trade surplus numbers and strong inflationary growth, Merkel decided to credit the currency’s weakness for the results. She also added that the election in France was great and that she is willing to cooperate as much as possible with Emmanuel Macron “so that he’s successful.”

GBP

The Pound fell slightly based on new Brexit concerns. British Brexit Secretary David Davis (not a typo) stated that the UK would walk away from current divorce proceedings if the exit bill is too high a toll. Apparently, the Brits have a budget and they do not wish to pay 100 billion Euros or more. It is likely the lawmakers who are meeting today in Brussels to set a mandate for EU Brexit negotiator Michel Barnier are not going to lower the cost.
This feels like the spark we have been waiting for to make the drama of this break-up far more exciting than it’s been since it started. The back and forth shall entertain and put serious downward pressure on Sterling.

Wednesday, May 17, 2017

U.S. Dollar on a six-day losing streak. Euro biggest winner

USD
The U.S. Dollar continued its losing streak this morning following based on solid data in other regions and political headlines in the U.S. Markets rewarded the Euro over the greenback after solid Gross Domestic Product and inflationary data suggested that the economic recovery in the trading bloc is now consistent and that downside risks related to elections have vanished for the most part.
Meanwhile, the dollar is likely to continue floundering as headlines related to current administration woes take center stage. The “buck” has lost its lust in the eyes of investors as distractions have taken away from America’s path towards infrastructure spending and tax reform, which drove the dollar higher for months after November.
We foresee some struggles for the USD in the next few weeks as we muddle through some unchartered waters. Oil prices are likely going to fluctuate wildly as OPEC figures out to what extent they can keep curtailing production and compete with North American output. Canadian Dollar and Mexican Peso have recovered some ground the past few days, notably MXN improved by 2.5% in the last nine days.

EUR
The Euro surged to its highest level in about seven months as a result of increased faith in the Euro-bloc’s ability to stay on course economically. Although the European Central Bank said it is not ready to consider tightening its monetary policy, characterized by 0.0% rates and easing measures, the central bank officials are likely to speak in a positive tone moving forward.
Consumer Price Index figures were released this morning showing a 1.9% pace of yearly growth, just slightly under the desired 2.0% the ECB has aimed for throughout the last few years. We feel that the Euro deserves to be given credit, but any ongoing struggles related to the periphery such as Greece’s debt repayment and Italian stagnation will weigh on the shared currency if no resolution in sight.

GBP

The Pound appreciated on the based on general dollar weakening and the lowest unemployment rate in the UK since 1975. The jobless rate fell to 4.6%, but economic data came with a caveat as wage numbers underwhelmed and revealed what many economists feared: Brexit uncertainty has deteriorated the labor sector and negatively impacted households.
Wages adjusted to inflation fell 0.2% in Q1, mostly caused by a half percent drop in March. Bank of England Mark Carney’s predictions are starting to become reality in the midst of talks, which so far have left a lot to be desired. GBP gains may be subdued and we still look for downward action down the line. 

Monday, May 15, 2017

Weakness of U.S. Dollar justified, data elsewhere positive 

USD
The U.S. Dollar is trading in weak ranges after ending last week with disappointing data that puts into the doubt the Fed’s ability to hike interest rates two more times. Retail Sales and other consumption figures highlighted the struggles of the economy in 2017 and the Bloomberg Dollar Spot Index is near its lowest point of the year. Chance of a Federal Funds increment at the June 14th meeting are above 93.0%, but we foresee difficulty in the FOMC taking action and likely waiting until the last quarter of the year.
Data continues to underwhelm with the Empire Manufacturing gauge showing contraction. This week we will monitor European developments as political uncertainty has faded to a certain extent, while Brexit hangs over the continent like a bag full of dirty water ready to burst at any point. Oil prices moving upward as a result of extended production cuts by OPEC and Russia is aiding our NAFTA currency pairs, so expect CAD & MXN to stay on recovery mode at least for today. Shale production in North America, which OPEC wishes would cease, could still be a drag on them later this week.  

EUR
The Euro is on the rise based on confidence built in the past few weeks with the French election easing concerns over the rise of anti-establishment forces and indicators proving that the European Central Bank’s measures have worked. Gross domestic Product numbers will be out for the Euro-zone tomorrow with an expectation of 0.5% quarterly growth. Furthermore, Chancellor Angela Merkel is elated at her party’s recent victories in regions where they had not triumphed as much before, solidifying that her Christian Democratic Party will remain a priority as she gets ready to run for a fourth term in 2018.

GBP

The Pound is currently in familiar ranges, refusing to fall in the midst of tense Brexit talks. The UK refused to accept European Union demands in regards to the timing of a trade deal after the exit terms are settled and the rights of EU citizens in Britain. The back-and-forth seems like an attempt to quiet critics of Prime Minister Theresa May’s approach and to rally conservatives behind the idea of running negotiations instead of being told what to accept.
The petulant stance may backfire as companies such as JP Morgan chase have announced plans to move jobs to Dublin and are already reaching agreements to do so soon. We strongly believe pressures from Brexit will sink Sterling especially if talks get more complicated and antagonistic.