Currency Market Trend Analysis: January 31, 2018

By The Numbers: Your FX Week In Review

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Market Analysis

CAD/USD - Canadian Dollar

CAD/USD opened last week at 0.8008 and closed at 0.8124 – appreciating by 1.45% as the CAD was underpinned by rising oil prices, and the USD suffered a sell-off following “America First” comments in Davos.

Canadian data came in mixed this last week, if tilted to the up-side. Canadian GDP is expected to come in at a respectable 3% for the year, but this growth has been dampened by below-target inflation. After an acceleration of headline CPI up to 2.1% in November, December figures disappointed with a 0.4% contraction. Wholesale sales also missed the mark, coming in at 0.7% against a 1% expectation. These figures were partially balanced by Canadian retail sales, which exceeded expectations and could help push inflation towards the BoC’s target.

The commodity-sensitive CAD gained support this past week from climbing oil prices. WTI accelerating to over $66 on comments from the Saudi energy minister that producers are in agreement on extending the supply cut deal past 2018.

Markets will likely look to Canadian GDP figures as well as President Trump’s State of the Union for impetus. Any comments that Trump makes in regards to his American First policies, or NAFTA will be in particular focus this week.   

1. GDP (Nov): Wednesday, January 31^st     

2. Markit Manufacturing PMI (Jan): Thursday, February 1^st

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GBP/USD - British Pound

GBP/USD opened last week at 1.3855 and closed at 1.4157 – appreciating by 2.18% despite middling UK data, as the USD came under pressure following Treasury Secretary Mnuchin’s weak USD comment.

The already weak UK data took a turn for the worse this past week, with slowing YoY consumer price growth, and poor December retail figures. These data do not bode well for the upcoming Q4 GDP. Additionally, jobless benefit claims rose by 8.6k in December against a 5.4k expectation. Wage growth data gave a slight reprieve for the Sterling, coming in at 2.4% against a 2.3% expectation.

Much of the Sterling’s gains came from USD weakness, rather than internal growth or a softening of political uncertainty. The USD came under pressure this week following Mnuchin’s comment that a weak USD is beneficial for trade growth. This statement is in line with President Trump’s American First Ideology, and also violates an international agreement against targeted exchange rates for competitive purposes. American First ideology fundamentally works against mutually beneficial trade, and will erode GDP growth for all parties as it is enacted. Markets viewed this as obstructive to future US growth, triggering a sell-off. Losses were partially reversed when Trump later clarified that the comments were taken out of context, though many remain unconvinced.

This will be a data-light week for the GBP, leaving markets to look to US politics and data releases for impetus.

1. Consumer Credit/Mortgage Approvals (Dec): Tuesday, January 30^th      

2. BOE’s Governor Carney Speech: Tuesday, January 30^th

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EUR/USD - European Central Bank Euro

EUR/USD opened last week at 1.2223 and closed at 1.2426 – appreciating by 1.67% as the USD came under America First-induced pressure, ECB President Draghi’s speech took on a surprisingly hawkish tone, and Germany’s SPD voted to proceed with coalition negations with Merkel’s CDU.

In his speech this past week, Draghi broke from expectations that he would downplay the common currency’s strength. Draghi stated that EUR strength reflected regional activity, and also the “comments of someone else” – referring to US Treasury Secretary Mnuchin’s comment in Davos. He went on to elaborate that it is not EUR appreciation that concerns him, but volatility. Markets took this as a sign that the ECB is comfortable with the EUR’s appreciation.

EZ political uncertainty eased further this week, with Germany’s SPD voting to proceed with coalition negotiations, and SPD leader Martin Schulz commenting that EU needs a strong pro-European Germany.

By OECD Purchasing Power Parity estimate, the medium-term anchor point for EUR/USD is around 1.32. With EZ data continuing to come in strong, political uncertainty fading, and undervaluation as measured by PPP, it is likely that the common currency will appreciate further against the USD. Some analysts are predicting that it will reach 1.30 by year-end.

1. ECB’S Praet/Lautenschlager Speech (EMU): Monday, January 29^th      

2. ECB Coeure Speech (EMU): Monday, January 29^th        

3. GDP (Q4, EMU): Tuesday, January 30^th

4. Harmonised Index of Consumer Prices (Jan, Germany): Tuesday, January 30^th         

5. CPI (Jan, EMU): Wednesday, January 31^st

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About the Author

 Collin McAliley - Business Operations Analyst,

Collin educates corporate clients on foreign currency markets lending industry best practices that enhance client knowledge and create specialized solutions that fit each business. Interested in having a custom international payments strategy or foreign exchange risk plan? Request A Call

Written with assistance from Christopher Griffith - Junior Data Analyst