The Forex Week In Review

The Forex Week In Review

Currency markets took a brief pause this week ahead of the key FOMC and BOE meetings next week.  A few key readings over the week provided focus and mild volatility though markets were predominantly focused on US GDP and PCE data on Friday.

Risk sentiment was softened initially on the week on reports that Iraq are seeking an exemption from OPEC production cut deal. Despite these comments, Oil was able to recover slightly into the end of the week driven by reports that OPEC countries, including Saudi Arabia, told Russia that they are open to a 4% production cut sparking fresh hopes that the organization is close to agreeing a formal deal. Oil prices were further bolstered by news of an OPEC “technical” meeting on Friday ahead of a meeting with non-OPEC members on Saturday.  Markets hope to get a solid sense of what the November 30th deal is going to look like on the back of these two meetings.

Overview

USD The Greenback suffered over the first half of the week driven by a weak Consumer Confidence print on Tuesday which fell to 98.6 from 103.5 previous putting an end to two consecutive months of gains in the reading. Despite further data weakness from a poor Durable Goods number, USD recovered on Thursday to trade higher on expectations of a strong GDP print on Friday, which came injust above consus at 2.9%.

EUR Two separate reports from Markit showed that both manufacturing and services sectors in the Eurozone gathered steam in October. Manufacturing PMI surged to 53.3 in October (September: 52.6), the highest reading since April 2014, indicating a pick- up in factory activities heading into the final quarter of the year. On the other hand, services sector was expanding at a quicker pace. PMI came in at 53.5 in October after a reading of 52.2 in September.

GBP 3Q GDP was better than expected printing 2.3% vs 2.1% YoY and0.5% vs 0.3% QoQ. Bank of England (BoE) Governor Mark Carney argued that the central bank’s key role is to achieve price stability and warned of the limitations of monetary policy. Market participants have priced out chances of a near-term rate cut from the BoE, given the slump in the pound in the past few weeks. The drop has stoked inflationary pressures and driven investors to sell gilts.

JPY Japan is on moderate pace of recovery, according to Cabinet office October economic report. The report cited the slowing down of emerging Asian economies and uncertainty of the outcome of Brexit as downside risks on growth. Final reading of Japan’s leading index came in at 100.9 in August (July: 100.0), according to the Cabinet office in Tokyo. The print was the highest in nine months, signaling that households were optimistic about the outlook of the economy despite the gradual pick up in current economic conditions. In a second release by the Cabinet office, the gauge of current activities was little changed in August (112.0 vs July: 112.1).

AUD rallied to 0.77 after Q3 headline CPI surprised on the upside, gaining 1.3% y/y vs. 1.1% y/y expected. The RBA’s forecasts suggest that today’s release is within the central bank’s expectations but remains significantly below its inflation target.

CAD strengthened against the USD, but pared sharp gains made after the central bank clarified remarks made by Bank of Canada Governor Stephen Poloz and as oil fell. Poloz clarified that it was not clear cut that the central bank should try to speed up closure of the output gap by cutting rates as it would leave the bank very close to using unconventional tools.