Currency Market Analysis

Dec 03, 2018 | Currency Market Analysis

Global Themes

  •  UK politics remain in the spotlight
  •  Powell and payrolls to steer USD?
  •  Euro pounces on dollar weakness
  •  OPEC meeting to support oil prices?


UK politics remain in the spotlight

A critical week for Sterling lies ahead as a five-day debate on Prime Minister Theresa May’s Brexit divorce deal commences in Parliament. After two years of intense negotiations, the UK finally secured a divorce agreement with the European Union (EU) last month, but the biggest challenge for Ms May now is getting the deal passed through Parliament. MPs debate in the House of Commons from Tuesday onwards, with the crucial vote on December 11th. Sterling has been succumbing to selling pressure as the increasing risk of the Britain crashing out the EU without a deal still threatens.

GBP/USD is 3% down from November’s high and stomached a fourth consecutive week of losses. GBP/EUR lurks in the lower realms of the €1.12 zone, after bouncing off a key support near €1.12 on Friday. Sterling remains vulnerable to further downside as the odds look stacked against Ms May getting the deal through a deeply divided Parliament.

  •  Another potential risk event to be aware of this week is Bank of England Governor Mark Carney’s speech to lawmakers about the final EU-UK Brexit deal on Tuesday. UK manufacturing, construction and services PMI data will also be released on Monday, Tuesday and Wednesday respectively.


Powell and payrolls to steer USD?

It’s the first week of a new month so US employment data will be released this Friday. Last month, the dollar spiked higher after a strong non-farm payroll figure, but it was the rise in average hourly earnings which mostly elevated USD demand. The 3.1% annual increase in wages was the biggest gain since April 2009 and the same increase is expected for the month of November. Federal Reserve (Fed) Chair Jerome Powell has recently highlighted that economic data will be key in determining the future pace of interest rate hikes.

Mr Powell is expected to speak on Wednesday, ahead of the major economic releases on Friday, which could send the dollar lower should the Fed Chair strike another “dovish” tone. The dollar was climbing higher last week as risk-off sentiment buoyed demand for the safe haven currency. However, at the G20 summit US President Donald Trump and his Chinese counterpart Xi Jinping agreed a trade truce for now to give time for negotiations between the two countries.

  •  The dollar index, which tracks the dollar’s strength against a basket of currencies, has fallen back beneath the 97 level as a result of improving market sentiment thanks to the deescalating trade tensions.


Euro pounces on dollar weakness

Data from the eurozone this week kicks off today with final manufacturing PMI data for November released at 9:00am. Retail sales data for October will be revealed on Wednesday, industrial orders for October revealed on Thursday and a revised GDP figure for the third quarter of this year is slated in for Friday morning.

  • The Euro has been trading at the lower end of its 2018 range against the US Dollar for a number of weeks now. EUR/USD managed to hang on to the $1.13 handle late on Friday and is already up 0.5% this morning. The common currency is capitalising on the weaker dollar due to the trade war ceasefire.


OPEC meeting to support oil prices?

Oil prices can have huge implications across financial markets and after slumping over a one year low below $50 a barrel last week, investors remain on edge. The meeting between the Organisation of the Petroleum Exporting Countries (OPEC) this week could prove pivotal for oil demand and thus affect the strength of currencies correlated with the commodity.

On Thursday and Friday, OPEC and Russia will be discussing oil supply with hopes of production cuts to stabilise the rapid decline in global oil prices. The recent over-supply, primarily due to slowing global growth, has outstripped demand and is one reason why oil has suffered its biggest monthly price depreciation in a decade.

  •  Oil exporting nations such as Canada and Norway often experience their currency fluctuate in a positive correlation with oil prices. Therefore, if OPEC agree on production cuts and oil prices do recover, the CAD and NOK might also follow suit.

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