Monday, July 31, 2017

U.S. Dollar weak entering August slowdown as Europe vacations

USD
The U.S. Dollar starts the week in familiar ranges after a week of underwhelming data and doubts over the timing of upcoming gradual hiked by the Fed. In comparison, the Euro has improved to the best levels since the start of 2015 and is establishing itself as the biggest beneficiary of economic indicators on the rise as well as the chances of central bank policy tightening. As a result, the greenback is down 3.6% against the shared currency for the month of July. On this last day without any significant releases, we do not see much opportunity to turn the trend.
Tax reform is now once again on news headlines after the failure by the Senate last week to work on healthcare overhaul. Markets are trading at an all-time high so we shall see if the discussion moves the FX flows in any way as participants react. We see Pound as volatile this week ahead of the Bank of England meeting and labor numbers for the U.S.

EUR
The Euro continues its appreciating momentum following last week’s spikes caused by solid economic figures. Retail Sales, CPI, and unemployment have all provided the Euro with enough of a boost to hit levels not seen in over two years.
Currently, banks are revising their currency outlooks since the strengthening that is taking place cannot be ignored while the dollar dwindles based on more uncertainty on our side. We are certainly not one of the banking institutions that ever believed the Euro would fall to parity with the dollar, but we have revised our outlook upward and believe it will take many winning factors for the dollar to change the trend in the next six months. Gross Domestic Product for the continent out tomorrow would have to disappoint to cause any Euro trouble.

GBP

Sterling increased by 2.3% in value against the buck in July primarily enjoying the stabilization of government after the surprise results of the June 8th elections as well as the struggles on the American end. The BOE will meet on Thursday and many are already predicting a dovish tone in which the officials will admit that inflation is just not where it needs to be for any tightening to occur. August will be slow in terms of news as even Brexit negotiators take off.

Friday, July 28, 2017

GDP and Consumption fail to make positive impact on the U.S. Dollar

USD
The U.S. Dollar is on the decline following the release of Gross Domestic Product and Personal Consumption figures. GDP quarter-over-quarter growth for Q2 came in at 2.6%, just under the estimated 2.7% while Personal Consumption grew at its forecast 2.8% pace.
However, only Personal Consumption numbers in the first quarter were revised upward while the opposite occurred for GDP. Also worth noting is that Core PCE (Personal Consumption Expenditures), the Fed’s favored way to gauge inflation, improved to 0.9% over the expected 0.7%, however, worse in Q1 than thought. Overall, the slate of statistics signals that economic progress is just barely around where forecasted and may not be good enough to surge the greenback against most counterparts, especially a much appreciated Euro.
 We’ll see if the University of Michigan Sentiment index helps at 10AM or further sinks the buck. Chances of a hike in September are as low as 4.1% and December is not guaranteed at 41.8%. Will the economy be able to handle further monetary tightening? Stay tuned next week as Fed officials give us plenty of opportunities to explain their thoughts throughout.

EUR
The Euro remains on a path to similar appreciation as the dollar experienced in 2014 based on excellent numbers out of France and Spain. GDP in France grew 1.8% over the expected 1.6% annual pace, its longest streak of improvement since 2011. Additionally, Spain is growing at 3.1% yearly pace, the fastest since 2015. There seems to be little resistance to Euro strengthening now that the value is based on real prosperity, the result of a more disciplined fiscal structure and easing methods from the European Central Bank that may soon be retrieved, only guaranteeing that the Euro stays afloat long-term. The Euro crushed the dollar in July, improving by 3.3%.

GBP
The Pound remains steady as it has an imbalance in the economy. Housing sector is struggling, companies are making plans to leave London’s financial center, but Retail Sales are great as revealed yesterday. Overnight, however, we learned that GfK Consumer Confidence fell to its lowest reading since the Brexit referendum, once again showing that there is anxiety within the confines of the United Kingdom. Although GBP is up 2.1% for the month, these poor indicators could mount enough pressure to reverse these gains in the upcoming months.

Thursday, July 27, 2017

U.S. Dollar breathes a little easier after Durable Goods Orders expand

USD
The U.S. Dollar recovered overnight and improved this morning following the release of better than expected Durable Goods Orders. Wednesday afternoon represented a significant losing moment for the buck as it fell to its weakest value since May of 2016 as measured by the Bloomberg Dollar Spot Index because of market reaction to the Fed announcement.
Surprisingly, the FOMC statement, which had no press conference to elaborate further, explained that members want to unwind the balance sheet soon by selling bonds purchased during QE, but this did not boost the dollar. As expected, there was no hike, but perhaps recent poor performance in indicators have convinced market participants that nothing will happen until December.
There are concerns that the greenback is weakening rapidly and it’s on pace to erasing all its gains since 2014, propelled back when the Fed decided to start tapering its quantitative easing program. We believe any buyers of currencies should take advantage any time a piece of data aids the dollar since the 2014 momentum the dollar experienced is now on the side of the Euro. We’ll see if tomorrow’s slated figures from GDP to Personal Consumption help any further.

EUR
The Euro is now trading around its strongest levels since the start of 2015 and could solidify its appreciating status if data out of the Euro-zone on Friday delights spectators. CPI figures coming out of many places, including Germany, will be closely watched as well as confidence measures for the whole bloc. Already Ifo Business Climate surveys in Germany look great while unemployment in Spain fell to its weakest level since the beginning of 2009. With the biggest of the original P.I.G.S. on the rise, we can realistically expect any other stellar data causing further appreciation of the shared currency.

GBP

The Pound was the exception in the dollar’s minor recovery, pushed upward as a result of strong Retailing Reported Sales by the Confederation of British Industry. Manufacturing is lagging in the UK and GDP showed us there is a slowdown, but people are buying things. In this strange imbalance, it is possible Sterling has room for falling in value since the Bank of England meets next week and their announcement may be characterized by concerns over Brexit effects, negative ones, on the economy. Once it is established that the BOE cannot mess with the accommodative environment while negotiations continues, the lack of interest-rate hiking will likely sink the Pound. For now, the “quid” keeps hanging on.  

Wednesday, July 26, 2017

FOMC Meeting today could move buck. U.K. GDP reveals slowdown

USD
The U.S. Dollar benefitted from good Consumer Confidence data, which enabled it to hit the brakes on losing ground to its main counterparts. Thus far this year, the buck has lost 9.6% of its value based on doubts over the political distractions, success in Europe, and dwindling fundamentals here.
However, the Fed has been a source of appreciation and although today there is not even a press conference after the FOMC announcement, the language within the statement could have a potentially positive impact if it mentions willingness to unwinding the balance sheet. Their hawkishness could surprise and add to chances of a move in September or if doubt is cast, a push for December that could sink dollar a bit.
We shall see if Home Sales do anything for the greenback as Construction figures have driven the currency higher recently, even if not for an extended period of time. Oil prices keep rising as curtail promises sound good to some futures-bulls, but some analysts predict the lowest of prices are yet to come as they see no balance down the line for the industry with other energy resources growing. Mexican Peso and Canadian Dollar moves mostly muted thus far.

EUR
The Euro is stuck around its highest level in about two years after Retail Sales grew in Spain and Consumer Confidence climbed in Italy. The fourth and third largest economies of the Euro-bloc respectively are showing consistent improvements after years of major struggle. Nevertheless, the fragile nature of current Italian politics still leaves a lot to be desired since reforms that are considered key to bettering banks and promote efficiency within government have not been pushed through. Additionally, there are still forces interested in combating European integration. For now, things are steady and we see room for Euro strengthening. Only good figures here can start limiting the shared currency’s gains.

GBP

The Pound is surviving despite bad signs of economic growth. The preliminary reading of Gross Domestic Product for the second quarter of the year showed a measly uptick of 0.3% as expected, signaling what some have feared: that indeed Brexit negotiations and the anxiety over companies leaving are having a negative impact.
Furthermore, Brexit negotiations will take the August summer break with major issues unresolved after two rounds of talks that did not clarify the rights of EU citizens living within the UK or the amounts to be paid by Britain to be divorced and free to dream of great trade deals. We see Pound only staying around current ranges because of the dollar’s own weakness, but any sign of optimism in the face of political distractions here will eventually take a significant toll on Sterling when all issues with Brexit considered.  

Tuesday, July 25, 2017

U.S. Dollar falls further as confidence grows elsewhere

USD
The U.S. Dollar remains on its weakening trend ahead of today’s vote on healthcare overhaul by the Senate and the currency is in the midst of losses to political risk as well as economic performance divergence. Data recently has shown that American indicators are meeting expectations, while overseas they hit record-highs as the European recovery shows vast strength. The greenback is now trading near its worst level since August of 2015 against the shared currency.
The tumultuous pressure on the dollar can only be eased if perhaps there are signs of less gridlock in congress, but at this point that looks a bit far-fetched. Fed-wise, we think discussions over winding down the balance sheet and confidence over future gradual hikes could have an impact, but there is little to stop the dollar’s bleeding.
Durable Goods and GDP at the end of the week will be crucial to set a more positive tone if there is reason for it. Oil prices may be on the up and up after news of deeper production cuts by Saudi Arabia, but MXN and CAD continue their fortunes off of their non-energy sector.

EUR
The Euro keeps on climbing as now confidence grows. The German IFO business climate survey improved to its highest reading ever while in France their confidence gauge reached the best level in six years. It seems like the bigger economies feel more than just fine about progress being made, while the European Central Bank maintains a strong economic outlook yet wants to contribute in steadying the flow of quantitative easing. There is plenty to excuse the Euro’s momentum and dollar-bulls will have to wait and see at what new high level there is profit-taking to see a reversal in greenback losses.

GBP

The Pound is surviving in the face of complicated negotiations over the best deal for Brexit as parties consider a transition period for trade and then a full abandonment. Liam Fox, a strong advocate for a hard Brexit admitted that it will be difficult to have a trade deal with the EU set up prior to the Brexit 2019 deadline, which would mean maintaining key trade terms for an undetermined period of time. It is not clear what direction the talks will go, but the EU is determined to charge a fee before the UK starts putting together their needs in the form of a new deal proposal.

Thursday, July 20, 2017

Euro rises after ECB meeting regardless of lack of hawkishness 

USD
The U.S. Dollar is trading in wild ranges this morning as markets react to the European Central Bank’s decision to delay any monetary policy tightening. Shockingly, the Euro is up as ECB President Mario Draghi is explaining that QE will not be changed and that officials are still committed to expanding and extending the program as needed, yet none of this is having a negative effect.
In fact, he admits that inflation is dragging, but feels very confident on the strength of the economic recovery. Basically, it looks like Draghi and other members felt the fall will provide all the necessary data and analysis that provide enough confidence to act on increasing interest rates without jeopardizing the progress being made.
Overall though, the U.S. Dollar is faring better across the board with positivity built from good housing numbers. The greenback also was not affected tremendously by the Bank of Japan’s announcement in which they upgraded their GDP forecasts, but lowered their inflation expectations, again. It seems like tapering of easing measures will happen everywhere, but in Japan.

EUR
The Euro is trading in wild ranges, swinging within a 75-point range as markets gauge the ECB’s thinking. As expected, rates were not changed, but there seems to be a counterintuitive correlation between the dovish tone of delaying action and the Euro appreciation we are seeing. ECB’s Draghi sounds very cautious yet optimistic.  
Furthermore, he said that tighter financing conditions are “the last thing” the ECB wants. As we interpret it, the Euro deserves credit and its value reflects the lack of political calamity that once seemed possible for the continent as well as the economic strengthening that has spread beyond Germany. The ECB just wants to keep enjoying the show and go on vacation.

GBP

The Pound weakened by over half a percent following a lack of agreement on the amount the UK must pay the EU with a now very intense French delegate’s demand that they pay big time. Prime Minister Theresa May is already under a lot of pressure, but now she must explain to Parliament that the EU is serious about payment of obligations before any trade deals is possible.
Bruno Le Maire, France’s Finance Minister, even went as far as quoting former British Prime Minister Margaret Thatcher in saying, “We want our money back.” The tensions play poorly for a Brexit team struggling to have a cohesive message in the face of EU lawmakers ready to make the divorce proceedings punitive.  

Wednesday, July 19, 2017

U.S. Dollar stalls its downfall after a boost from Construction numbers

USD
The U.S. Dollar is fairing a bit better against most of its major counterparts as market participants eagerly await the European Central Bank meeting’s decision tomorrow, the main event before the continent goes on holiday mode. A surprise in the Housing Starts and Building Permits data from this morning are also aiding the dollar in its minor, yet crucial recovery after falling dramatically yesterday and all throughout July. Housing Starts grew by 8.3% over the expected 6.2% while Building Permits rose by a stellar 7.4%, beating estimates of just 2.8%. The strong expansions contrast with prior monthly contractions.
With markets relatively quiet and no major data, we will once again look for headlines to see if they serve as a driver for any type of movement. Although it didn’t affect the North American currencies much, NAFTA revisions have been made to update certain industry guidelines and show the U.S. wants to export more to cut the trade deficit. In oil news, the glut continues and OPEC continues its struggle with pushing for production cuts in the midst of an effort in China to curtail its use of fossil fuels.

EUR
The Euro stopped its winning streak after the U.S finally got a glimpse of positive data in what has been a rough month for the buck. The ECB starts its meeting today and there is speculation that officials are working on their options to start shedding some of the quantitative easing in place. After some years of high unemployment, little to no inflation and political risks, the Euro-bloc has recovered thanks to the central bank’s efforts, but the economy is now ready to be relieved from the bank’s intervention. The QE monthly injection of €60 billion is set to end completely in December. We shall see if there is any mention of increasing interest rates eventually, which could cause another Euro spike.

GBP

The Pound is starting to pivot downward following yesterday’s release of underwhelming inflationary figures. The indicators, such as CPI, slowed down and now the Bank of England does not feel the pressure to hike interest rates in order to fend off the potential of prices going up too high. Now, it looks like BOE Governor Mark Carney was right in stating that the inflationary build-up has been the result of the rapid depreciation of the “quid” post-Brexit referendum and that it should be overlooked for now. Brexit-wise, it seems like meetings went well, with both parties discussing details in regards to maintaining borders with Ireland as open as possible and making sure EU citizens in the UK are valued.

Tuesday, July 18, 2017

Healthcare bill practically dead causes major U.S. Dollar losses

USD
The U.S. Dollar is down after last night’s public announcements by two more senators who would not vote for the healthcare overhaul bill, essentially killing the legislation. Consequently, the greenback is down against every currency across the board with Pound being the exception. The Euro climbed further against the dollar to a 14-month high. Overall, this is not good for the dollar moving forward as gridlock in Washington now casts further doubt on the administration’s ability to push its economic agenda. Political instability is never positive for any nation’s currency and we are no exception.

We are now facing multiple negative factors for the dollar including dwindling economic indicators that puts the Fed’s hike outlook into question. Without much in terms of heavy data until next week, we foresee a struggling buck for the week and majors may reach new best-of-year ranges against it.

EUR
The Euro reached its best levels in 14 months following news of the healthcare bill failing to even come to the senate floor. Four senators from the Republican side of the aisle are causing havoc for an administration eager for a legislative win in order to propel other items, especially on the economic front. However, the comparison between the Eurozone and the U.S. is starting to show some stark differences with the supposed political risk that was to bring Euro down in 2017 already out of the equation after elections that united the pro-EU leadership.
The tables have turned. A more confident European Central Bank will meet on Thursday to potentially improve the Euro’s fortunes with some optimistic, yet cautious, analysis while odds of a rate increase in the U.S. are now below 50.0%. The recipe is there for Euro appreciation and this latest development in the U.S. has created new support and resistance levels.

GBP

The Pound fell as a result of slow inflationary growth as revealed by consumer Price Index and Producer Price Index figures. CPI did not go up or down for the month of June and now sits at 2.6% annual-growth for the year under the expected 2.9%. Additionally, PPI did not improve at all in June while lowering its annual average pace to 3.3% under the estimated 3.4%.
Slowdown in the middle of negotiations does not bode well for Sterling as the UK readies itself for further concessions at the divorce proceedings with the EU. Domestically, the British Brexit team is even being mocked by the public for seeming less prepared than their EU counterparts at the meetings yesterday. 

Monday, July 17, 2017

U.S. Dollar faces losses from last week ahead of central bank meetings

USD
The U.S. Dollar is trading in mixed ranges this morning following a tough end to last week in which economic indicators signaled deficiencies and contractions in current consumption. As a result, the Bloomberg Dollar Spot Index fell and now it’s 1.7% down for the month. Traders are now reassessing the chances of the Fed hiking this year, which now stand under 50.0% since no figure indicates that the economy is heating up too quickly.
The lack of expansion in sales and long-term purchases cannot continue if the Fed is to gradually increase borrowing costs. A survey shows Americans are optimistic about the economy, but are frustrated with Washington, perhaps why future investing is on hold.   
The only counterpart the buck is dominating at the moment is the Norwegian Krone, which is down bigly on news of the worst inflation level in two years. The struggles for the Nordic petro-currency make sense considering the awful time in oil markets. With no major data, we will see if news headlines affect the flow of markets as potential Russian meddling, Brexit talks, and North Korea continue to dominate the cycle.

EUR
The Euro remains swimming around its best levels in over a year, although momentum is stalled prior to the European Central Bank meeting on Thursday. Economists are wondering if there will be plenty to say about open-ended sovereign bond purchases, which could mean the central bank is not done maintaining some level of intervention to keep an easing environment.
Thursday could indeed mark a turning point for the currency if a hawkish ECB lead Euro to further merited long-term appreciation as it becomes clear they intend on tightening, however, if there is still talk of careful calculation and delayed action, Euro could decline slightly. The differences in economic performance are what matter most now and there is more doubt on our side of the Atlantic currently.

GBP

The Pound hit the brakes a bit, but is now close to its high for the year considering the frustration with figures out of the U.S. The second round of Brexit talks goes on this week where the UK hopes to soften the chances of a very high toll as it pays its obligations for leaving the continental agreement.
The last two weeks have seen a UK Brexit team having to concede to the EU lawmakers’ wishes for actual acknowledgement of a monetary penalty and inclusion of EU citizens as well as their interests. Retail Sales and Consumer Price Index numbers could swing Sterling one way or another as the currency is also becoming sensitive to data points recently.   

Friday, July 14, 2017

Stagnation and contraction. CPI and Retail Sales sink the U.S. Dollar 

USD
The U.S. Dollar is pivoting downward following the release of truly disappointing inflation and retail sales data. Monthly Consumer Price Index figures showed no expansion and the year-on-year CPI increased by 1.6% under the estimated 1.7%, which suggests inflationary growth is not increasing near the desired pace by the Fed of 2.0%. Furthermore, Retail Sales really surprised us with contraction instead of any improvement, which economists expected. June’s numbers were supposed to show 0.4% growth, but fell by (-0.1%). At the time of writing, the Bloomberg Dollar Spot Index was headed towards a half percent loss immediately after the indicators hit the wire.
Fed Head Janet Yellen’s testimony this week to the congressional Housing Committee already casted doubt on the economy and the Fed’s approach to future hikes, but these numbers certainly lower the chances of a Fed rate increment by end of the year to just 43.9%. With distractions in Washington as political infighting takes over headlines and the economic reality of poor consumption, the greenback is starting to feel the pressure and we see little chance of much recovery from current ranges in the next few weeks.

EUR
The Euro is now up 1.1% for the month of July, slowly but surely appreciating as a result of better economic performance and hopes of monetary policy tightening. Today happens to be Bastille Day in France, so we may not get much in terms of news out of the Old Continent. CPI numbers for Italy came out as predicted, so if even Italy has growth it does not bode well for the buck against the shared currency, which could climb further as the day goes on.

GBP

The Pound is on the rise also as a result of poor economic performance in the United States. Additionally, Bank of England’s Ian McCafferty sounded the trumpet of hawkish sentiment after he expressed his belief that the central bank should start winding down some its sovereign bond purchases from QE. It would be way too early to take such action since rates have not been increased and would require levels near where the Fed is. However, this discord between BOE members is convincing traders that the bank will likely not maintain its easing stance much longer.
Brexit-wise, Britain has finally admitted on paper that indeed an amount of money will need to be paid for the divorce process to start going, if possible in any way, somewhat smoothly. The EU has estimated a required payment of about EUR 100billion. While many surrounding PM Theresa May disagree with the quantity, it is an important step toward talks getting better and with less friction.