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. 

Thursday, May 11, 2017

Tempus-FX: U.S. Dollar improves on PPI and instability elsewhere 

USD
The U.S. Dollar is currently on the rise as strong Producers Price Index figures hit the wire this morning along with ongoing lowering of Initial Jobless Claims. PPI excluding Food & Energy grew by 0.4% in the month of April; double the expected 0.2% while Initial as well as Continuing Claims came in at lower figures. It is important for the “buck” to trend higher on the basis of good economic performance since markets are growing concerned over the FBI Russian probe and firing controversy that seems to serve as another obstacle for the Trump administration to make progress on its economic agenda.
In addition to improved indicators, Boston Fed President Eric Rosengren once again called for three more interest rate hikes this year explaining that inflation needs to be prevented from outpacing its desired target as the economy continues to grow. Markets remain relatively quiet as it looks like there is a mix of convincing data that global output is better, but also risks in the political arena subduing any gains in confidence. Lots more data tomorrow could push dollar higher if positivity remains.

EUR
The Euro is in the midst of depreciating despite upgrades to its growth forecast. The European Commission raised their estimates from 1.5% to 1.7%, but warned that Brexit comes with a lot of uncertainty that could potentially cause stagnation, already seen in poor household consumption as well as business investment.
European Central Bank President Mario Draghi spoke to Dutch lawmakers and maintained a tone of wait-and-see, but certainly mentioned that the recovery seen in the Euro-zone is less choppy than before and that political risks have faded after the French election. We think solid data in the U.S. and policy divergence will keep EUR from gaining significant ground as well as the prospects of trouble in Italy.
GBP

The Pound fell this morning following the BOE policy meeting in which officials said that any increment in interest rates will depend on a “smoother” Brexit. Industrial Production numbers did not help the prospects of any rate hikes as they revealed that the economy lost momentum in the first quarter of 2017. Households, per Governor Mark Carney, are also feeling pressure from higher prices, translating into hesitation in large purchases as well as retail.
The reality is that Brexit is not a time when the economy should be expected to be stellar in any way and the bitter start to the talks has left lot to be desired. We feel Sterling is overpriced at the moment and shall suffer further from the consequences of abandoning its place in the European security, trade, and migratory coalition. Some economists expected the central bank to have more than one dissident pushing for hikes, but only one argued for it. 

Monday, May 8, 2017

U.S. Dollar stronger as priced-in win by Macron calms global fears

USD
The U.S. Dollar surged after an important weekend in which the European Union, moderate politics, and trade openness were all big winners. Following a shockingly rightist 2016 that witnessed the passing of Brexit and the scandalous campaign that led to Donald Trump’s presidency, the landslide victory by Emmanuel Macron of France has a surreal feeling to it, yet it comes with a sense of calm because pricing in his triumph was correct.
Things went according to plan and the methods of prediction achieved accuracy. Nevertheless, the greenback stands solid after a week of positive data and correction in the market after so much concern and speculation over France.
Today bring us nothing in terms of data. We foresee a quieter week, but recently we’ve had surprises. All eyes may now focus on Britain as the Bank of England prepares to meet on Thursday. Their take on policy in the midst of negotiations is likely to cause movement. Inflationary and consumption figures will round up the week.

EUR
The Euro is trading in similar ranges to last week, originally spiking by over a full cent once Macron was declared the winner of the presidential election. Emmanuel Macron is living every kid’s dream: His teacher is the love of his life and he indeed became president. The enigmatic former investment banker is new to running races, but his demeanor won the French voters, or at least more than the majority of those willing to cast a ballot. Overall, the turnout was not great and many voters chose “blank” as their option in protest of the two top candidates.
The country is certainly divided and serves as an example of disillusion in the European citizenry. It is worth noting that elections to the French National Assembly will be held on June 8th, when it will be imperative for Macron to form a coalition towards the center. The nationalists behind Le Pen may not have won, but they received twice the support they managed to get when Marine’s father ran for president in 2002. The anti-establishment feeling is strong and also growing. Macron will need to be an ambassador for pro-trade, promoting the values of cooperation and tolerance.  

GBP

The Pound did not fluctuate wildly after the election in France. GBP will likely stay untouched until Thursday when the BOE meets. It is expected that Prime Minister Theresa May will consolidate power as earl elections in England have given the Conservatives an advantage already. Data-wise, the UK saw some terrible housing numbers as home prices had their first quarterly fall in five years. With threats of France competing to be the new banking hub over London, Sterling may be under pressure soon.


Thursday, May 4, 2017

Fed believes economy will be OK, Fed chances go up, but no USD rally

USD
The U.S. Dollar is trading in mixed ranges this morning having improved overnight against commodity-based currencies while faltering against most European counterparts. Prices of metals continue to drop on concerns over fading Chinese demand as the world’s second largest economy is making efforts towards services and focusing less on manufacturing. Consequently, the currencies of countries dependent on the demand for raw materials and natural resources are down. However, the greenback remains weak against EUR and GBP despite the positivity displayed during the FOMC meeting yesterday.
Chances of an interest rate increase at the next June 14th meeting climbed to 97.5% after the Fed announcement as officials seemed to downplay the recent slump in economic indicators. Furthermore, there was no mention of what to do with the balance sheet and the tone was optimistic about maintain the rate outlook to a total of three hikes this year. Gradual tightening will be the law of the land and we expect that if figures improve in the next month the dollar will gain ground. We have another vote scheduled today on healthcare overhaul in Congress and we’ll update if that has any effect.

EUR
The Euro advanced further overnight as a result of a highly praised performance by candidate Emmanuel Macron at the final debate before this Sunday’s French elections. Marine Le Pen apparently was not at her best and was being schooled by a man who was relatively unknown not long ago. His lead is of 20 percentage points according to polls, but the world is still anxious over the potential of a “Frexit.” If Le Pen wins, the Euro will plummet as the very existence of the European Union will be at peril. Euro could have some “relief spikes” next week if Macron triumphs, but we do not see a rally that would exceed current ranges by much.

CAD

The “Loonie” has depreciated aggressively in the past few weeks, now swimming around its worst levels against USD since February 18th, 2016. Oil price fluctuation has certainly not helped, with major dips being the result of unexpectedly high production in North America regardless of an agreed output cut by OPEC nations as well as Russia. CAD reflects the problems being faced by currencies highly affected by the oil glut, but there is hope in the horizon for our neighbor currency.
The non-energy sector has been growing, the accommodative stance by the Bank of Canada may change if inflation spikes, and threats to trade agreements such as NAFTA may force Canada to use its leverage in working other deals. One thing for sure is that the animosity towards open trade from the new administration in the U.S. has made Mexico and Canada’s relationship tighter while South American economies interested in further free trade improve their economic outlooks. This however may only be seen in the long-term as current weakness may be here unless oil demand and prices go upward in the summer.  

Wednesday, May 3, 2017

Markets relatively flat ahead of FOMC announcement

USD
The U.S. Dollar is trading in mostly tight ranges primarily because of anticipation of many risk events at the end of the week. Data-wise the ADP Employment indicator showed an increase of 177K jobs, just slightly above expectations of 175K, but the prior month’s figures were revised downward. Later at 2PM the Federal Reserve will reveal its decision, but will not hold a press conference afterwards. Policy divergence is one factor that can push the dollar upward, but if the tone is dovish considering the fact that economic numbers have been underwhelming, the “buck” could suffer on speculation that the Fed will only hike once more in 2017.
Oil prices have improved after reaching a six-week low yesterday on the basis of further output cuts by OPEC producing countries and also Russia. Peso remains around its average for the year, while the “loonie” has sunk to a 14-month low. CAD could recover if WTI Crude hits and stays above $50.0/barrel.

EUR
The Euro continues to stay afloat ahead of the French elections with the help of good data and ongoing efforts to support Greece. The troubled touristic nation that has stolen financial mishap headlines for the last eight years agreed to further spending cuts and other austerity measures in order to keep being fed by Brussels. It is this type of intervention that some economists fear may be needed in Italy as the country faces banking irregularities and inefficiencies to add to its fragile political state.  
Matteo Renzi, the Prime Minister who had to leave after his referendum on amending the constitution failed, is back to lead his Democratic Party to combat a rising anti-establishment party, the Five Star movement. Threats to status-quo leadership across the continent will weigh on the Euro in the long-term, but for now focus will be on France’s willingness to say “No” to anti-EU Marine Le Pen.

GBP

The Pound continues to surprise traders, rising as a result of surprisingly positive indicators. An indicator of retails sales showed that British products are higher in price, highlighting inflationary growth in the UK as a result of the weak Pound since Brexit. In addition, manufacturing is improving at a multi-year best pace.
Aside from the incredible resilience in certain aspects of the economy, Prime Minister Theresa May seems to have been fueled by the report of a bad dinner with EU officials to reaffirm her commitment to working on a beneficial Brexit for her constituents. When it comes to negotiations with the EU, she claimed she’d be a “bloody difficult woman.”