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Boris and Kathy Forex Weekly 26/6/2017

Posted on: 26 June 2017 , by: Boris & Kathy , category: Market Review

FX Weekly with Boris and Kathy

By all counts, it was an extremely quiet week in the foreign exchange market.

There was very little change in the U.S. dollar, which traded unevenly against all of the major currencies. We haven’t seen this type of listless trading in months and while the summer holidays in the Northern Hemisphere are partly to blame, it is monetary policy and political uncertainty that are trapping currencies. The greenback traded higher versus the Australian dollar, British pound, Canadian dollar and Japanese yen, was unchanged versus the euro and lower against the Swiss franc and New Zealand dollar. With that in mind, all of the moves were less than 1%. This week’s data calendar is light but with more Fed speak and the House of Commons vote in the UK that could determine whether Prime Minister May keeps her job, the summer doldrums could turn into a summer squeeze.

Spot Returns Month to Date 26/6/17


Data Review

  • Current Account Balance -$116.8b vs. -$123.6b
  • Existing Home Sales 1.1% vs. -0.4% Expected
  • House Price Index 0.7% vs. 0.5% Expected
  • Manufacturing PMI 52.1 vs. 53.0 Expected
  • Services PMI 53.0 vs. 53.5 Expected
  • Composite PMI 53.0 vs. 53.6 Prior
  • New Home Sales 2.9% vs. 3.7%

Data Preview

  • Durable Goods Orders- Durable good orders are volatile and difficult to predict
  • Conference Board Consumer Confidence- Significantly lower University of Michigan Survey suggests softer report
  • Advance Goods Trade Balance and Pending Home Sales- Lower Philly offset by Stronger Empire so tough call
  • GDP Annualized and Personal Consumption- Revisions are hard to predict but if changes are made, will be market moving
  • Personal Income and Spending- Potential for downside surprise given Weaker average hourly earnings and retail sales
  • Chicago PMI and U. of Mich. Report- Lower Philly offset by Stronger Empire. Umich revisions hard to predict

Key Levels - USD/JPY

  • Support 109.50
  • Resistance 111.50

The problem for the U.S. dollar is that investors aren’t sure how serious the Federal Reserve is about raising interest rates as the negative surprises in U.S. data point to a slower rather than accelerating recovery. Even a few of the Fed Presidents who spoke this past week don’t seem convinced that the economy is performing well enough to warrant another round of tightening although many are leaning in that direction. Of course a lot can change between now and December, when the Fed is expected to hike again and it all starts with the next non-farm payrolls report, due for release in early July.

From now until then, there’s nothing on the U.S. calendar that could convince investors the Fed is right and the economy is healthy enough to withstand another rate hike before the end of the year. Existing and new home sales were the only reports released this past week and they had very little impact on the greenback. We also don’t expect any big moves from this week’s durable goods, consumer confidence, trade balance and revised GDP reports. The only number we’re really interested in is personal income and spending but the primary focus will be on Fed speak (Yellen, Williams, Harker and Kashkari take to the podium in London on Tuesday) as investors try to discern where the majority of Fed speakers stand – are they encouraged by the low level of the jobless rate or are they dubious of the outlook given the slowdown in job growth? As we don’t expect much clarity in the coming week from the second tier economic reports on the calendar, we expect scepticism to reign over optimism with USD/JPY coming off its highs for a dip below 111.00.


Data Review

  • Rightmove House Prize- -0.4% vs. 1.2% Prior
  • CBI Trends Total Orders 16 vs. 7 Expected
  • CBI Trends Selling Prices 23 vs. 20 Expected

Data Preview

  • Current Account Balance and GDP Revisions – No revisions are generally made to UK GDP 

Key Levels - GBP/USD

  • Support 1.2600
  • Resistance 1.2900

Meanwhile, the clock is ticking in the U.K. Theresa May has about a week to prevent her government from falling apart. In her speech this past week, the Queen set a one-week deadline for the House of Commons vote and if May doesn’t strike a deal with the Democratic Unionist Party by then and loses the vote, she could be forced out of power. This catastrophic outcome would create major political uncertainty that could send GBP/USD back down to 1.26. Although the Tories are optimistic, the DUP is pushing back hard with the party refusing to answer May’s calls for 36 hours and demanding GBP 2 billion for Northern Ireland’s infrastructure and healthcare programs. Apparently, they even held “secret talks” with the Labour and Liberal Democrats to pressure May into accepting their demands. Chances are she will cave to the DUP just as she is beginning to cave to the European Union on Brexit talks. 

With no major U.K. economic reports scheduled for release in the coming week (GDP is generally not revised), Brexit negotiations, the House of Commons Vote and DUP coalition talks will drive sterling trade. Although GBP dropped to 2-month lows after Mark Carney speech this past week – he said it is not the right time for a rate hike, it bounced back quickly on hawkish comments from BoE Chief Economist Haldane. Carney is worried about Brexit uncertainty and wage growth but Haldane believes that a hike would only offset part of August stimulus. Although he did not vote for a rate hike, his close alignment with the 3 members who voted for immediate tightening earlier this month leads investors to wonder who else could be pondering a hike. In the meanime, the political stakes are high and the level uncertainty leads us to believe that GBP will resume its slide back to 1.26 as political troubles often translate to economic ones especially as Brexit and a hung Parliament makes it difficult for the UK economy to grow enough to warrant a rate hike this year. 


Data Review

  • GE PPI -0.2% vs. -0.1% Expected
  • ECB Current Account 22.0b vs. 35.7b Expected
  • EZ Consumer Confidence -1.3 vs. -3.0 Expected
  • GE Manufacturing PMI 59.3 vs. 59.0 Expected
  • GE Services PMI 53.7 vs. 55.4 Expected
  • GE Composite PMI 56.1 vs.57.2 Expected
  • EZ Manufacturing PMI 57.3 vs. 56.8 Expected
  • EZ Services PMI 54.7 vs. 56.1 Expected
  • EZ Composite PMI 55.7 vs. 56.6 Expected

Data Preview

  • GE IFO Report- Stronger ZEW and GE factory orders offset by lower IP and PMI so IFO could swing either way
  • EZ Economic and Consumer Confidence- Sentiment should be stronger given the upgraded economic forecast
  • GE CPI- Potential for downside surprise given weaker PPI growth
  • GE Unemployment Change and Claims Rate- Potential for downside surprise Rate of job creation hit 5 month low but still fastest since Nov
  • EZ CPI Estimate- Likely to be softer given subdued price pressure in the region

Key Levels - EUR/USD

  • Support 1.1100
  • Resistance 1.1300

The only economic data that we had from the Eurozone this past week were Friday’s PMI reports and they failed to take EUR/USD out of its 1.1213 and 1.1119 trading range. Although the Eurozone economy is still growing at a healthy rate, the latest reports show slower growth in German services and manufacturing sectors. France also saw slower growth in services but manufacturing activity accelerated in the month of June. Unfortunately, that was not enough to drive overall growth higher so the Eurozone Composite index dropped to 55.7 from 56.8 – economists anticipated a far more modest decline to 56.6. The details show weaker new export orders, employment, and prices. With that in mind, the overall levels are still strong and reinforce the central bank’s economic upgraded economic forecasts. In the week ahead there are a number of important pieces of Eurozone data scheduled for release including Germany’s IFO, retail sales and employment reports. We are looking for slightly softer data so 1.13 should hold in EUR/USD. 


Data Review


  • RBA Meeting Minutes show cautious tone due to concerns with the labor and housing markets

New Zealand

  • GDT Prices decline by 0.8%
  • RBNZ keeps rates steady at 1.75%


  • Wholesale Sales 1.0% vs. 0.5% Expected
  • Retail Sales 0.8% vs. 0.3% Expected
  • Retail Sales Less Autos 1.5% vs. 0.7% Expected
  • CPI 0.1% vs. 0.2% Expected

Data Preview


  • CH Manufacturing and Non-Manufacturing PMI- Chinese data is hard to predict

New Zealand

  • Trade Balance- Potential for downside surprise given Rise in business PMI but lower dairy and strong currency


  • GDP- Potential for upside surprise given strong rise in retail sale and trade balance

Key Levels

  • Support AUD .7450 NZD .7100 CAD 1.3100
  • Resistance AUD .7650 NZD .7300 CAD 

The commodity currencies in different directions with the Australian dollar snagging the title of the week’s worst performer and the New Zealand coming in as the best. Of course, the changes on both sides were modest with AUD falling less than -0.5% and NZD rising by only +0.6%. The Australian dollar fell the first 4 days of the week and rebounded on the last. The move cannot be attributed to RBA minutes as they provided nothing insightful and allowed the Australian dollar to drift lower on the back of Moody’s downgrade of 4 major financial institutions. With no major Australian data on this week’s calendar, we should see buyers come in around 75 cents. 

The New Zealand dollar traded higher on the back of the Reserve Bank of New Zealand’s monetary policy announcement. The central bank left interest rates unchanged and rather than express concern about the recent rise in the currency, they said the “lower currency would help rebalance growth.” Their decision to overlook the currency’s sharp appreciation over the past month is a strong vote of confidence in the economy that should help NZD outperform other major currencies. New Zealand’s trade balance is scheduled for release this coming week and we believe that lower dairy prices and a stronger currency will drive the surplus lower, taking NZD/USD off its highs.

Last but certainly not least, the most interesting currency to be trading right now is the Canadian dollar. It is in a strong downtrend that should continue in the week ahead even though consumer prices rose less than expected in the month of May. Annualized CPI growth eased to 1.3%, the slowest since November 2016. Retail sales, on the other hand, doubled expectations, reinforcing the Bank of Canada’s optimism. This past week’s wild swings could continue with Canadian GDP scheduled for release and Bank of Canada Governor Poloz and Deputy Governor Patterson speaking on Wednesday. We believe that any gains will be limited to 1.3350 and at worst 1.34 and expect USD/CAD to drift down to 1.31. 

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