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Currency Market Analysis

Oct 14, 2019 | Currency Market Analysis

Global Themes

The U.S. dollar firmed above three-week lows in light holiday trade. The greenback rose against the euro, sterling and Canadian dollar but slipped against the yen. A dose of reality and caution returned to markets as players realized that nothing has significantly changed with respect to the U.S.-China trade war and Brexit. Global markets had rallied last week at the expense of safer plays after Washington and Beijing agreed to a partial trade truce and rekindled hopes for Britain and the EU reaching a new Brexit deal. But the fact that nothing materially has changed and that uncertainty remains elevated served as a reality check and excuse for investors to play it safe. This week’s main events include U.S. retail sales Wednesday and Thursday and Friday when Britain and the EU hold 11th hour Brexit talks. Japan and Canada today are enjoying public holidays. America’s bond market will be closed for Columbus Day.


The yen rebounded from two-month lows as caution reigned to the benefit of safer plays like the Japanese currency. Japanese markets are closed today for a pubic holiday. Once back from the holiday, attention will be on U.S. consumer spending and late week Brexit negotiations in Brussels. Brexit headlines that suggest a lower risk of Britain crashing out of the EU later this month without a deal would tend to be negative for the yen and other defensive assets.


Canada’s dollar softened below one-month highs in holiday trade for Thanksgiving. A 2% slide in oil pushed prices below $54, weighing on commodity-sensitive currencies like Canada’s.  Loonie sentiment brightened Friday after another month of impressive job growth cemented expectations for the Bank of Canada to keep borrowing rates unchanged at 1.75% later this month. Canada’s inflation report Wednesday will loom large for the local interest rate debate.


The euro edged down from three-week highs against the dollar in cautious, holiday-subdued trade. Safer, defensive assets are in vogue like the U.S. dollar and Japanese yen as last week’s air of optimism gives way to caution. Brexit developments are likely to dominate direction this week for European currencies. Any outcome that suggests a lower risk of a no-deal Brexit would tend to be euro- and sterling-positive against the greenback.


Sterling slipped to begin a critical week as caution over Brexit increased. Sterling experienced a 5-cent range last week and bolted to three-month peaks after a few optimistic words from the heads of Britain and Ireland played up prospects of a Brexit deal by the month-end departure date. Still, odds of Britain clinching a Brexit deal have increased which could help keep a floor under the pound. This week’s big event will be a Brexit summit Thursday and Friday in Brussels. For sterling to maintain buoyancy, this week’s Brexit developments would need to support an outcome in which Britain exits the EU with a deal.

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