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Market watch - 8th December 2017


The USD is trading slightly higher this morning as Non-Farm Payroll came in at strong 228K vs an expected 198K. However, wage growth remains subdued as it only rose .2% which is lower than the forecast of .3%. Additionally, the unemployment rate remained steady at 4.1% The dollar is stronger across the board vs the Euro, GBP, and Japanese Yen but slightly weaker against the commodity currencies, mainly the Canadian dollar, Aussie dollar and the kiwi.
Next Wednesday the Fed is widely expected to raise interest rates and the real question is where they go from there.  Will Janet Yellen keep the Fed on a tightening track, hinting of further moves to come or will she take a step back and leave Powell with a clean slate? The market is hoping for a more aggressive Fed when it comes to rate hikes in 2018 as the last FOMC meeting led to a dollar sell-off as the minutes were portrayed as dovish.

The Canadian dollar has ticked higher in the Friday session, after two straight losing sessions. On the economic front we only had House Starts released today which is considered 2nd tier data, the reading came in stronger than expected at 252K
The Canadian dollar is down close to 1.0% this week, but there was some good news on Thursday, as key Canadian indicators beat their estimates. Building Permits jumped 3.5%, beating the estimate of 1.7%. Ivey PMI came in at 63.0, above the forecast of 62.7 points, indicating of strong expansion. These readings have helped the Canadian dollar stem a rough week, which has been marked by mostly downward movement against the US dollar.
There were no surprises from the Bank of Canada earlier in the week, as policymakers maintained the benchmark rate at an even 1.00%. Still, the Canadian dollar lost ground after the rate announcement, which was dovish in tone. The Bank said that there was slack in the labor market, and investors took this as a sign that a January rate hike was less likely. Another uncertainty facing the BoC is NAFTA.

The euro continues to lose ground this week, it is down 1.0% this week, and is currently at its lowest level since November 22.
In economic news, Germany’s trade surplus fell to EUR 19.9 billion, missing the estimate of EUR 22.0 billion. This marked a 3-month low. There was better news out of France, as Industrial Production surged 1.9%, crushing the estimate of -0.1%. This marked the strongest manufacturing output reading since May. In the US, the focus is on employment numbers
Yesterday German Industrial production showed a surprising fall of 1.4% MoM, this hurt sentiment towards the Single currency. Euro interest rates also slipped lower, which despite this news stayed yet again in recent ranges. Early German trade balance data today showed a reduction in Germany’s trade surplus from last month’s Euro 21.9 billion to 19.9 billion. As far as German and European politics is concerned it was interesting to note that yesterday SPD leader Schulz called for a United States of Europe.

The British Pound weakened this morning following its peers as the US added more jobs than expected.
However, BREXIT talks continue to move along as both sides the EU and UK have managed to agree that “sufficient progress” has been made on the first phase of Brexit talks. Agreement has been made on the issues of a Brexit bill, European citizens’ rights and the Irish border; negotiations can now progress to the second stage of Brexit talks including the all-important trade treaty. This development should mean that banks and businesses that had been considering moving away from the UK will now be able to start planning for the continuation of business in the UK. Donald Tusk, President of the European Council, in early London trading said that “we are ready to explore close EU-UK trade links.” As suggested GBPEUR has now broken out of its recent ranges.
On the economic front, GBP Manufacturing Production stayed level at .1%, exactly at the market forecast.

The Japanese Yen has weakened in the overnight trading session and extended its losses into the morning on the back of stronger USD employment data.
Additionally, although the Swiss Franc is flat on the day, the US dollar continues to push towards parity as it has been strengthening vs the CHF for the past 5 days.

The AUD and NZD both remain well bid this morning and have avoided the dollar’s gains. The Aussie dollar especially is still considerably weaker and trading at multi-month lows as the central bank continues to remain neutral on rate hikes and economic data disappoints.

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