Euro Weekly

It has been a mixed week for the pound; sterling hit a four-week low against the euro as data showed that wage growth was lagging behind inflation, which held steady at 3% but recovered towards the end of the week. However, these data have dampened any hopes that a further interest rate rise from the Bank of England is on the horizon. It seems that the market has its eyes on Brexit and in this instance, no news is not good news at all. The pound is currently holding its ground, but much relies on the December round of exit talks with the EU. Positive retail sales in the UK and snippets of good news on the Brexit front this week appear to be contributing to a sense of optimism, however and Mario Draghi’s speech later today may be also be causing slight jitters for the Euro.

Despite a muted finish, the euro had a strong week against the pound and the US dollar, and strengthened by an average of 0.8% against a dozen actively traded currencies midweek. The success was partly due to the technical picture.
The euro broke through the support/resistance level at around $1.1670 that had held since July. It then went on to crack the downtrend that had constrained it in September and October. The second factor in the euro’s favour was a decent set of Euroland ecostats. Third quarter growth was steady at 0.6% and ZEW’s survey of investor sentiment jumped four points to 30.9.

The US dollar has had a difficult week, reflecting the fortunes of its beleaguered President. The drop in the greenback was triggered by reports late this week that special counsel Robert Mueller served President Trump’s election campaign a subpoena in mid-October, requesting documents relating to Russia. Any gains made on the back of a bill which passed in the House of Representatives aimed at cutting US company rates from 35% to 20% evaporated amidst the news.

In the run up to Thanksgiving on 23rd November, the dollar may be seeking some positive news ahead of the Fed’s rate decision on 13th December to balance this out and regain some of its losses.

Meanwhile in Canada, the dollar also weakened against its neighbour due to a fall in oil and stock prices. This may also relate to the Canadian challenge to changes in NAFTA agreements after the US moved to impose duties on softwood lumber exports. The talks are due to start today and carry on until the 21st November; the slight softness in the Loonie suggests that investors may be nervous about the outcome.

Speaking of trade agreements, the Trans-Pacific Partnership or TPP was also making its presence felt in the currency markets this week as it struggles to gain traction. Canada appear hesitant to confirm their attendance but New Zealand’s Prime Minister insists the deal is still alive despite reports that the Green party intends to vote against its coalition partner when the final deal reaches the House.

Australia had some good news to report, with NAB’s two measures of business confidence demonstrating confidence in the future. NAB’s business conditions, which looks at how things are going right now, was seven points higher at 21 while business confidence – where things are going in the short term – was unchanged from an upwardly-revised 8. The counterbalance to this was the shake-out in commodity, equity and energy prices that contributed to a broad risk-off attitude. On the oil front, doubts emerged about the commitment of Russia to capping oil production. At the same time a story did the rounds about North American oil sands and fracking producers and their ability quickly to compensate for any shortfall in OPEC output. Tuesday morning’s weaker-than-expected Chinese ecostats contributed to the idea that demand for Australia’s coal and iron ore exports could wane.

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