Image © Andrey Popov, Adobe Stock
The global FX calendar is incredibly light today with the U.S. away for Thanksgiving and therefore global sentiment and technicals remain in the driving seat.
Market liquidity is likely to be thinner than usual which could in turn allow for some unexpectedly sizeable moves.
Asian markets were softer towards the close; and this appears to have ensured deeper moves lower by the Australian and New Zealand Dollars which remain latched onto Asian market sentiment.
“AUD and NZD were the biggest movers overnight, drifting lower as Asian equities gave up initial gains,” says Sue Trinh, a foreign exchange strategist with RBC Capital Markets.
GBP
The Brexit limbo extends, here are the key pointers to take note of:
– Theresa May will head back to Brussels Saturday to finalise the Brexit deal
– A conference of European leaders intended to sign off the deal Sunday might not happen
– Reports suggest 100 Conservative MPs now oppose Theresa May’s Brexit plan
– The deal is effectively dead, yet the Pound soldiers on
The point to note in all the above is of course how resilient Sterling remains in the thick morass of Brexit uncertainty.
It clearly believes a deal is still possible, or to be more accurate, a ‘no deal’ will be avoided.
While the current deal looks unlikely it appears there might be some credence being afforded to the view that should May’s deal fail, no Brexit will happen at all. We would expect the exit process to somehow be stalled in the event of the deal failing.
This will then allow time for May to oversee a referendum on her deal or no deal – we believe this to be the only credible question to put on a ballot if the 2016 vote is to be respected.
Or, May will stand down, a general election is called, the Conservatives lose and Labour takes the U.K. into a customs union with the E.U.
Of course this is just one of many scenarios that might play out, but for today it is our preferred view.
What to watch ahead: Can May secure that deal with E.U. leaders? She will be going back to Brussels Saturday we believe.
This would allow E.U. leaders to rubber stamp the deal Sunday. Yet, as mentioned, what happens in Europe is now largely irrelevant: Parliament will not vote whatever comes back through.
EUR
The Euro will be in focus when the European Central Bank issues the full minutes to its most recent policy meeting held on October 24-25 at 12:30 G.M.T.
The meeting was something of a placeholder for ECB policy therefore we expect very little by market-moving news to come through.
At 17:00 the ECB’s Yves Mersch will deliver a speech to the Banking and Corporate evening organised by the Hauptverwaltung in Bayern der Deutschen Bundesbank in Munich, Germany.
Mersch is not considered to be one of the ‘big guns’ on the ECB’s board and we therefore expect little by way of fireworks for the Euro but we will be wary of crucial hints at the direction of ECB policy and will therefore be watching for the unexpected.
Concerning the technical setup for the headline EUR/USD pair, technical analyst Karen Jones with Commerzbank tells us:
“EUR/USD has eased back to and is trying to recover from its 20 day ma at 1.1368 very near term. Once the current November high at 1.1500 has been bettered on a daily chart closing basis, we will become bullish again and look for gains to 1.1607/22 (2018 downtrend and 16th October high).
“Currently dips lower will find initial support somewhere around the 20 day ma at 1.1368 and are likely to now be well supported around 1.1300.”
CAD
With the U.S. on holiday Canadian trading hours will be thin and USD/CAD could see some volatility in thin conditions.
We will be eyeing the Bank of Canada’s Carolyn Wilkins who will appear at a panel event in Ottawa at 14:45 GMT.
Wilkins has already spoken this week and her comments were latched onto by watchers of the Canadian Dollar and BoC policy.
Wilkins gave a speech in which argued that their inflation targeting regime might be unsuited to the current low level of rates and said the Bank would conduct “a thorough review of the alternatives” to the system of targeting 2% inflation.
Most alternatives would probably widen out the Bank’s focus from a single inflation objective and in all likelihood result in a looser monetary policy.
“We saw something similar when the Reserve Bank of New Zealand under the new Labour government earlier this year broadened its remit to include employment as well as inflation – the net result there was a weaker NZD. This would be a sea change for CAD and, together with the lower oil prices, result in a significantly weaker currency,” says Marshall Gittler, a strategist with ACLS Global.
Therefore, Wilkin’s comments today will carry more weight than usual.
NZD
As mentioned, the New Zealand Dollar is an under-performer today in line with the soft end to equity market trade in Asia, confirming it to be primarily concerned with overall sentiment.
Domestically, there was however news to be had.
The New Zealand Dollar faded after the October annual New Zealand net migration inflows slowed to a three‑year low of 61,751.
There was however some offsetting news to the reduced annual net migration inflow, and that was a lift to a record high in temporary visitors to New Zealand.
“Furthermore, the reduced pace of annual net migration appears to be slowing. NZD/USD will remain in a narrow range around 0.6800 for the remainder of the trading week,” says Richard Grace, a foreign exchange strategist with Commonwealth Bank of Australia.
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