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Market watch - 18th October 2019


The Buck is trading broadly lower this week, except its 2.5-month high with the Japanese Yen from yesterday, due to broadly increased risk tolerance as the EU and UK made a Brexit deal pending the approval of the UK Parliament and US trade relations with China seem to be moving in a positive direction now. The Dollar sold off this week against both the single currency and Sterling in particular as the agreement of a Brexit deal is positive for both, and EURUSD hit a fresh nearly 53-day high while GBPUSD soared to its five-month peak overnight today. The Greenback is also close to its 79-day low versus the Loonie overnight, along with its one-month low against both the Aussie Dollar and Kiwi as the commodity group benefited from the risk on trading.  The US Dollar slipped to its three-week low against the Swiss Franc on the Euro strength coupled with better than expected Swiss Trade Balance data yesterday morning, dropped to tis 2.5-month low with the risk positive Mexican Peso yesterday morning.  The Buck remains in striking distance of its 2-month low with the Chinese Yuan from Monday on US-China trade progress this week.  The domestic CB Leading Index MoM release is due later this morning along with FOMC members George and Clarida due for speeches, the start of the IMF Meeting today, while the Federal Budget Balance is set for tentative release this afternoon.   


The Canadian Dollar hit its new 79-day high versus the Buck today, its 81-day high with the Yen this morning, but is also close to tis one-week low versus the Euro yesterday.  In addition to broadly firmer risk appetite supporting the commodity group broadly, the WTI crude oil price is at its four-day high today just a little below the 15-day high form Monday trading, while Manufacturing Sales MoM was released +0.1% better than expected at +0.8% and the ADP Non-Farm Employment Change came in at +28.2K but notable upward revision to previous from +49.3k  to +109.9K which is not surprising considering the excellent Canadian domestic jobs figures last week. There is no headline domestic economic data for this morning but Bank of Canada (BoC) Deputy Governor Timothy Lane is scheduled for a speech late this afternoon. 


The Euro rallied to its 53-day peak with the Greenback along with a one-week high against the Loonie, while ticking up from its 5.5-month low with the broadly firmer GBP overnight yesterday.    Eurozone Current Account data was better than expected today at 26.6B compared to 21.3B consensus following the strong release of Trade Balance on Wednesday morning.  Day 2 of EU summit is along with the star of a three-day IMF meeting. While concerns about Euro area growth and inflation remain prevalent now, the Brexit agreement between the EU and UK – while it has to be agreed by the UK Parliament - is both positive and stabilizing for the region.


Sterling has benefited significantly form the Brexit progress this week, as the rei now an actual deal between the EU and UK which is going to be presented to Parliament tomorrow.  The British Pound managed five-month highs versus the Buck, CAD, and single currency this week although EURGBP has stabilized higher given an orderly Brexit is ultimately positive for the EU also. However, moving forward will not be without its challenges as the DUP has already unsurprisingly voiced opposition to it with regards to issues around the Irish backstop.  While this makes it somewhat unlikely that Prime Minister Boris Johnson will get the 320 votes he needs tomorrow, its notable progress which vastly diminishes the high chances for a no deal Brexit which existed previously.   Market participants had worried that a Boris Johnson's victory in a snap election could lead to a no-deal Brexit, but this looks much less likely now that a deal is on the table.


The Japanese Yen fell broadly this week on increased market risk appetite while the Swiss Franc was assisted by the firmer single currency as USDJPY rose to this 2.5-month high yesterday while USDCHF fell to its new three-week low.  The Buck fell to tis fresh one-month low with the Aussie Dollar and Kiwi overnight as risk tolerance coupled with the improved prospect of a US-China trade resolution bolstered the antipodeans and USDMXN dropped to its fresh 79-day low yesterday on the same risk-on factors.  USDCNY dropped modestly in striking distance of its 15-day low from Monday as phase one of the US trade agreement with China was announced.  Japanese National Core CPI YoY was released last night on target at +0.3% while Chinese GDP Q/y was just -0.1% below its +6.1% target while Industrial production YoY was +5.8% compared to its +5.0% consensus forecast along with better than its +4.4% reading previous.

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