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Market watch - 22nd August 2017

The US Dollar got a boost against most of its rivals in the overnight session.  Indeed, the Greenback ticked up against all of its major rivals, but ranges have remained fairly tight.  The Buck was most improved against the widely sold Pound, and Cable touched close to a two-month low. US HPI is due out at 9am and the Richmond Manufacturing Index is set for release at 10:00am today.

Interestingly, there has also been rumors that President Donald Trump’s Chief Economic Adviser Gary Cohn is emerging as the clear front runner to succeed Janet Yellen as the Chair of the Federal Reserve.  Mr. Cohn, who was previously the president of Goldman Sachs, notably questioned Fed Chair Janet Yellen in 2015 when the FOMC was preparing to increase rates saying she had “no legitimate argument to hike Interest Rates without inflation being close to the target of 2%.”  While the Greenback has traded up overnight, any news confirming that Gary Cohn may be selected as Yellen’s replacement could bring the future of FOMC monetary policy normalization into further question.  Market participants have already shown some skepticism the Fed will continue to tighten policy amid lowered inflation expectation.

The Canadian Dollar weakened a touch in its pairing with the Buck overnight, but in very tight ranges, ahead of Canadian Retail Sales data this morning.  The Canadian Dollar extended gains from Friday yesterday on Commodity Currency strength due to higher gold and oil prices coupled with broad US Dollar selling, and brushed off yesterday’s worse than expected Wholesale Sales figure at -0.5% compared to +0.6% expected,  However, gold and oil sold off a bit overnight, and so did the Loonie.  That said, all eyes are on the key Retail Sales data as higher than expected inflationary data could bolster expectations of further Bank of Canada (BoC) monetary policy tightening in the near future.

The Euro lost ground against the Greenback overnight, after EURUSD rose to a one-week high largely on US Dollar weakness yesterday.  The fact that both the German and Eurozone ZEW Economic Sentiment Surveys both missed target today helped undermine the Euro.  The German ZEW Survey reading was released at 10 compared to the 14.8 expected, while the Eurozone survey came in at 29.3 compared to the 34.2 anticipated figure. A recent Wall Street Journal article has suggested that European Central Bank (ECB) President Mario Draghi could potentially layout the end of fiscal stimulus when he speaks at The Jackson Hole Summit on Friday, but this is counter to last week’s report that Mr. Draghi would not unveil any new information about ECB monetary policy at this week’s symposium.  Supposing that Draghi will give any sort of hawkish commentary at the Jackson Hole Symposium would clearly be Euro positive, just as any dovish verbiage from the ECB President would likely be Euro negative.

The British Pound lost the most ground of any major in its pairing with the Buck overnight, as GBPUSD touched a near two-month low (June 28) by essentially one point lower than its July 12 low.  Brexit talks and the uncertainty on the economic ramifications continued to weigh on Sterling. Following this sentiment, JP Morgan strategists have cut their targets for GBP for Q4 and 2018 citing a poor economic outlook, and HSBC have also released reports that they expect the Pound to come under significant pressure with a soft GDP figure predicted on Thursday.  These speculative predictions reflect broad market concerns regarding Sterling, and the broader UK economy, in light of future Brexit developments. CBI Industrial Order Expectations did come in at 13 which was better than the 8 expected, and 10 previous, but the Pound remains weaker on the day.

The Australian and New Zealand Dollars fell along with gold and oil prices, as the Commodity Group was generally lower. US Dollar purchases also certainly played a role, as the Buck gained against most of its counterparts overnight.  The Australian CB Leading Index MoM came in at +0.5% compared to a previous 0.0%, but US Dollar strength was the main factor overnight.

The Yen also pulled back overnight on the stronger US Dollar, as US Treasury Yields ticked up this morning.

The Swiss Franc followed the Euro to weaker levels against the Buck today. The Swiss Trade Balance figure came in better than expected at 3.51B compared to 2.88B which was decidedly positive.  However, US Dollar strength, and Euro weakness, have pushed the Franc lower in its pairing with the Greenback.

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