Currency Market Analysis

Jan 13, 2016 | Currency Market Analysis

Global Themes

Overnight data from China helped ease worries about global growth and support a market rebound, but uncertainty about commodity markets and oil in particular remain. This week oil prices fell to a 12-year low around the $30-per-barrel mark. The common inverse relationship between commodity prices and the US dollar keeps the greenback supported ahead of today’s Fed speeches and Friday’s retail sales data. In contrast, the Canadian dollar continues to trade near the 1.42-1.44 price range versus its US counterpart amid the oil rout. 


The Pound has fallen to another new multi-year low ahead of an interest rate decision by the Bank of England this Thursday at 12:00. A combination of worsening of financial market conditions in China, the subsequent fall in commodity markets, and domestic data indicating a slower UK economy means that any hawkish rhetoric from the MPC is probably unlikely. Overnight the GBP/USD rate hit its lowest in nearly 6 years ($1.4350).


Friday’s 292k US Payrolls result was the second strongest jobs gain recorded in the US in 2015, reassuring US dollar bulls that the US currency will probably appreciate further this year. However, wage inflation data which formed part of Friday’s US labour market data was far from robust, and will certainly add to the Federal Reserve’s concern about inflation prospects in the US. The next key trading point for the US will come on Friday with US retail sales and industrial output data expected.


Friday’s Swiss unemployment and inflation data came in on the wrong side of expectations, with unemployment rising from 3.4% to 3.7% in December. Separately, data from the SNB showed the bank suffered a record loss of CHF23bln in 2015 after abandoning its EUR/CHF 1.20 cap and ramping up on intervention. Last week’s data does not bode well for the CHF.


The Euro continues to trade around the $1.10-$1.08 range against the US dollar, above December’s low near $1.06 despite Friday’s solid US jobs report. This Thursday at 12:30, minutes from the ECB’s December 03 meeting will be released. This will give traders more insight into why President Mario Draghi cut the bank’s deposit rate but decided not to increase monthly asset purchases despite earlier priming markets for more QE.

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