NAFTA Deal Close But Doubts Remain OANDA Market Beat

OANDA Senior Market Analyst Alfonso Esparza reviews the major upcoming market news, macro analysis and economic indicator releases that will impact currencies, stocks other asset classes.

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The USD/CAD gained 1.01 percent in the first week of September. The currency pair traded at 1.3173 on Friday after a tale of two reports put downward pressure on the loonie.

The Canadian and US jobs reports were published on Friday at the same time.

While the US economy added 201,000 and saw wage growth.


usdcad Canadian dollar graph, September 11, 2018

The Canadian economy lost 51,600 jobs in August and the unemployment rate rose to 6 percent.

The Canadian dollar was on the back foot most of the week given the uncertain future of the US-Canada trade negotiations.

The silver lining came on Thursday after Bank of Canada (BoC) Deputy Governor Carolyn Wilkins said that a breakdown in the US-Canada trade talks would not keep the central bank from raising interest rates.

Busy week in markets gets off to a slow start

Investors encouraged by Trump/Juncker meeting

Equity markets are trading slightly in the red in what has been a slow start to an otherwise very busy week in financial markets.

Stock markets have been gradually rising in recent weeks, making their way back to the record high levels they achieved earlier in the year before the numerous trade conflicts involving the US heated up. The apparent progress made at the White House last week between Donald Trump and Jean-Claude Juncker has eased some concerns for now but the threats generally remain.

Earnings season has delivered a positive distraction for investors, with companies once again reporting stellar quarterly results aided by the obvious benefit of tax cuts. We’ll get results from another 144 S&P 500 companies this week as US corporates look to continue the positive momentum of earnings season so far and potentially propel the index to a new high.

DAX ticks lower, German CPI next

BoE seen raising rates while Fed and BoJ also meet

There’s also a number of central bank meetings this week, the most notable of the lot probably being the Bank of England with investors widely expecting a rate hike, taking the benchmark rate above 0.5% for the first time since early 2009. A rate hike is now 86% priced in which could trigger a lot of volatility if policy makers once again hold off, as they did back in May.

BoE Interest Rate Probability

Source – Thomson Reuters Eikon

The Federal Reserve and Bank of Japan will also hold meetings this week although these events may be less eventful, with neither seen adjusting policy this month. The Fed is also on a very clear tightening path and with the economy performing in line with expectations and the trade conflicts not yet biting, I don’t expect there to be any change in the central bank’s stance.

G7 FX moves look to central banks for direction

There has been speculation that the BoJ may look to slightly remove accommodation by increasing the yield it will allow the 10-year to reach, although I’m not sure that will come this week. Investors appear to be testing the BoJ’s resolve, with the yield having hit its highest level since February last year. Should the central bank reject the speculation, I would expect this to quickly reverse course.

This week also sees the release of the US jobs report which is widely regarded to be the most important economic report of the month and is typically a trigger for market volatility.

Economic Calendar

 

For a look at all of today’s economic events, check out our economic calendar.

OANDA Market Insights podcast (episode 25)

OANDA Senior Market Analyst Craig Erlam reviews the week’s business and market news with Jazz FM Business Breakfast presenter Jonny Hart.

This week’s big stories: US/EU set for tariff deal, US GDP boost, Facebook shares plummet, Brexit blow for May.

Craig also previews the week ahead with interest rate decisions coming from the Bank of England, Federal Reserve and Bank of Japan, as well as the July US jobs report.

USD/JPY – Japanese yen gains ground on strong inflation report

U.S. Economy grew 4.1% rate in Q2

Easing trade fears provide boost ahead of US GDP

Dollar Rebounds After Strong Jobs Report

US added 200,000 positions in January

The US dollar rose against major pairs on Friday. The release of the U.S. non farm payrolls (NFP) proved to be the much needed shot in the arm after the greenback was under pressure for most of 2018. The job gains were above expectations but more importantly the hourly wages came in higher, giving the Fed a potential green light to hike 3 or 4 times in 2018. The market is estimating a 77.5 percent probability of the first rate lift to come in March.

  • The Reserve Bank of Australia (RBA) will publish its rate statement on February 5
  • the Reserve Bank of New Zealand (RBNZ) will follow on February 7
  • The Bank of England (BoE) will host a super Thursday on February 8

USD surged after wages rose more than expected



The EUR/USD gained 0.22 percent in the last five days. The single currency is trading at 1.2424. The USD was having a week to forget but a jobs week is not done until the U.S. non farm payrolls (NFP) report is released. The gain of 200,000 jobs in January was the boost the dollar needed after the Fed and the ADP did now sway the market. The USD reversed most of the losses of the week, gaining 0.43 percent against the EUR. The biggest boost came from the hourly wages growth at 0.3 percent for an annualized gain of 2.9 percent.

The disappointing December jobs report played a part as investors were estimating 180,000 positions and instead got pleasantly surprised by both strong gains and positive inflation signals. The move in the USD could be under threat next week as there are few economic released of note in the US and the political drama in Washington has not been beneficial to the greenback.

Fundamentals indicators and monetary policy has been supportive of the USD, but political uncertainty has hurt the dollar’s status as a reserve currency. The upgraded growth expectations around the world have also shrunk the gap between the US and the rest of the world.



The GBP/USD lost 0.31 percent during the trading week. The currency pair is trading at 1.4120 ahead of the Bank of England (BoE) monetary policy meeting on Thursday, February 8 at 7:00 am EST. The central bank is not expected to change its benchmark rate but it could signal a hike sooner rather than later specially as expectations of a softer Brexit and economic growth has been encouraging. The BoE made its first rate rise in a decade back in November. The data released on Super Thursday, so called because of the sheer number of announcements, will guide the market and shape the monetary policy expectations going further into 2018.


Canadian dollar weekly graph January 29, 2018

The USD/CAD gained o.86 percent during the week. The currency pair is trading at 1.2421. The USD appreciated against the loonie and put the Canadian currency at weekly lows. The greenback rose 1.22 versus the CAD on Friday after the release of the U.S. non farm payrolls (NFP). The U.S. Federal Reserve meeting and positive employment numbers earlier in the week did little for the USD, but with the release of the biggest indicator it all turned.

The economic data releases form Canada will start with on Tuesday, February 6 at 8:30 EST with publication of the trade balance. Later that same day the Ivey Purchasing Managers Index will be posted at 10:00 am EST. Employment data will be the highlight of the week on Friday, February 9 at 8:30 am with a 2,000 job loss report expected after the back to back gains of 70,000 positions in the previous months.

Market events to watch this week:

Monday, February 5
4:30am GBP Services PMI
10:00am USD ISM Non-Manufacturing PMI
7:30pm AUD Retail Sales m/m
7:30pm AUD Trade Balance
10:30pm AUD Cash Rate
10:30pm AUD RBA Rate Statement
Tuesday, February 6
8:30am CAD Trade Balance
4:45pm NZD Employment Change q/q
NZD Unemployment Rate
Wednesday, February 7
10:30am USD Crude Oil Inventories
3:00pm NZD Official Cash Rate
3:00pm NZD RBNZ Monetary Policy Statement
3:00pm RBNZ Rate Statement
4:00pm NZD RBNZ Press Conference
Thursday, February 8
4:00am AUD RBA Gov Lowe Speaks
7:00am GBP BOE Inflation Report
7:00am GBP MPC Official Bank Rate Votes
7:00am GBP Monetary Policy Summary
7:00am GBP Official Bank Rate
7:30pm AUD RBA Monetary Policy Statement
Friday, February 9
4:30am GBP Manufacturing Production m/m
8:30am CAD Employment Change
8:30am CAD Unemployment Rate

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

US Yields Near Four Year High Ahead of Jobs Data

Are Rising Yields Weighing on Equity Markets?

It’s been another rocky start to trading in Europe on Friday and the US looks on course for a similar open, with Dow futures off around 1%.

It’s been another big week for earnings, with Apple, Amazon and Alphabet all releasing number after the close on Thursday and another 11 S&P 500 companies reporting today. At the same time, there’s been a number of important data releases this week as well as a monetary policy announcement from the Federal Reserve which has triggered another rally in US yields, with the 10-year Treasury having hit a high of 2.8%, the first time we’ve seen these levels since April 2014.

We’ve also seen corresponding rises in Europe with Gilt yields at their highest since May 2015 and Bunds at their highest since September 2015. This may well be contributing to the declines we’ve seen recently across Europe – along with the corresponding appreciation of the euro and pound – and could now be taking its toll on US stocks. That doesn’t necessarily mean we’ve entered a risk-off period or that stocks are headed for a correction but a sharp rise in yields, as we’ve seen, can also weigh on equity markets.

DAX Slips to 4-Week Lows as Deutsche Bank Shares Plunge

US Jobs Data Eyed as Fed Insists That Inflation Will Rise

With yields now rising, all eyes will be on the US jobs report today. With the Fed anticipating higher inflation and markets buying into the idea of higher rates, the jobs data will be very closely monitored. Naturally, the non-farm payrolls and unemployment numbers will be noted, with around 180,000 new jobs expected, but it’s the earnings that people will be most interested in.

If we’re going to see a sustainable increase in inflation to 2%, wages will need to rise at a faster rate than they have for years now. The Fed has repeatedly claimed that labour market slack is deteriorating and that higher wages and inflation should follow but that is yet to materialise. Whether that’s due to slack still existing that standard measures overlook or other structural issues, it creates a problem for the central bank which is intent on continuing to raise rates. Wages are expected to have risen by 2.6% in January, up from 2.5% in December which is an improvement but not enough to satisfy the doubters.

What to look for in U.S payrolls (NFP)

Bitcoin’s Slump Continues as Losses Near 60% Since Mid-December

Bitcoin’s slump is continuing on Friday, with the cryptocurrency now trading close to $8,000 and down another 10%, with a raft of stories being blamed for its latest decline. In much the same way that every day seemed to produce another good news story for cryptocurrencies in November and early December during its ascent, we’re currently seeing the opposite in motion during its downfall with hardened regulation, outright bans, hacking and investigations being a daily occurrence.

Source – Thomson Reuters Eikon

Whether its Indian authorities cracking down on cryptocurrencies, Facebook banning adverts or the US CFTC subpoenaing Bitfinex and Tether – as suspicions grow on the relationship between the two after speculation that the latter is being created to drive the price of bitcoin higher – it seems that there’s a lot of negative news at the moment and that’s seriously taking its toll. Bitcoin is now down close to 60% from its peak and some others are faring even worse, with Ripple down around 80% in the last month following its own meteoric rise last year.

The buy the dip mentality that supported the rise of cryptos last year even through some testing times is fading by the day. We’ve seen some resilience at times over the last month and a half, most notable around $13,000 and $10,000 in bitcoin but both of these eventually gave way. In much the same way that it was difficult to pick the peak on the way up, it’s tough to pick the bottom now but based on current sentiment and momentum, it looks likely that the rout isn’t quite over yet.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

USD/CAD Canadian Dollar Higher After Strong GDP and Persistent USD Weakness

The Canadian dollar is higher on Wednesday after the economy accelerated its growth in November. Canadian GDP is posted monthly and showed a gain of 0.4 percent in November. The Canadian economy started 2017 with a bang which led the Bank of Canada (BoC) to raise rates twice before a slowdown in the third quarter. The two 25 basis points rate hikes, the overall strength of the economy, recovery energy prices and a soft US dollar continued to boost the loonie. In 2018 the BoC has hiked once more leaving the benchmark rate at 1.25 percent.

The Canadian currency has enjoyed a strong start to 2018 and is more than 2 percent higher than the USD year to date. The political uncertainty in the US that delayed pro-growth policies until the end of 2017 remain. The fate of NAFTA has kept the Canadian dollar under pressure as the end of the original timeline fast approaches. The negotiations have shown little progress and with only two rounds to go, the end result could be all parties walking away empty handed. Elections in Mexico and the United States this year will further complicate negotiating in such a divisive topic as trade.


usdcad Canadian dollar graph, January 31, 2018

The USD/CAD lost 0.24 percent on Tuesday. The currency pair is trading at 1.2304, a four month high, after the release of the monthly gross domestic product in Canada for November. The 0.4 percent gain is the biggest gain since May 2017 and a signal that growth is back on track after a slowdown in the third quarter.

The U.S. Federal Reserve kept its benchmark interest rate at 1.25 – 1.50 percent on Wednesday. The meeting will mark the last time for Janet Yellen as Chair of the central bank. Jerome Powell will take over next week and with no meeting scheduled for February the Fed is expected to lift rates in March to mark the start of the Powell era.

Prime Minister Justin Trudeau told the CBC earlier that he does not think the US will pull out of NAFTA. The PM is aware that it is a possibility and his government is working on contingency plans. Also today US Secretary of Commerce Wilbur Ross said that the renegotiations are far from being completed at this point. He did recognize that progress has been made, but very little of it in the hard issues.

During his first State of the Union address President Trump mentioned that the US had entered into unfair trade deals and his goal was to turn that page on that period. Pro-growth policies were late to arrive, but after the tax reform gave Trump his first policy victory he intends to build on it by proposing a 1.5 trillion dollar infrastructure spending legislation.


West Texas Intermediate graph

Oil prices are recovering from a drop earlier in the session. West Texas Intermediate is trading at $64.55. The weekly US crude inventories report by there Energy Information Administration (EIA) surged by 6.8 million barrels. The forecast was a mild 100,000 barrels, but it appears the cold weather has slowed down refineries in the south resulting in the buildup. The surprise to the upside was balanced with a larger than expected drawdown of gasoline stockpiles.
Market events to watch this week:

Thursday, February 1
4:30am GBP Manufacturing PMI
10:00am USD ISM Manufacturing PMI
Friday, February 2
4:30am GBP Construction PMI


*All times EST
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar