FX market outlook

FX market outlook

Posted on Friday, August 18 2017 at 8:25 am GMT+0000

Geopolitical issues command forex markets again in absence of economic data

In the absence of any significant economic data releases during the Asian session, political turmoil out of Washington and a terrorist attack in Spain dominated the news-flow in forex markets. The dollar weakened against most major currencies, with the yen getting a relatively significant boost.

Investors’ concerns over the Trump administration’s ability to realize any of the campaign-promised agenda were renewed this week. Following President Trump’s remarks on violence in Virginia, many CEO’s stepped down from business councils run by the President, which forced him to dismantle the two bodies. Further to this, the President publicly criticized two Republican Senators that disapproved his comments on race. Speculation of a potential departure of Gary Cohn, the president’s lead official on tax reform added to the market unease.

Ahead of the European session, the dollar/yen pair fell to 109.24, euro/dollar rose to 1.1737 and sterling firmed to $1.2884.

The euro rose against the dollar, mostly linked to the weakness in the US currency as the released minutes from the latest European Central Bank meeting showed a dovish tone among policymakers. The euro recovered from yesterday’s three-week low, despite another terrorist turmoil on the old continent. The first attack left at least 13 people dead and several injured after a van hit pedestrians on one of the busiest streets in Barcelona yesterday. The second attack was prevented by the police that shot five suicide bombers in the small town of Cambrils.

In terms of economic data, German PPI was the sole data release out of the eurozone. The annualized producer price index surprised to the upside by increasing 2.3% instead of the forecasted 2.2%. On a monthly basis, the index also surprised positively as it rose 0.2% in July, above the 0.1% forecasted and from stagnation recorded in June.

Sterling was trading higher in the wake of the weaker dollar, despite the pound’s fall yesterday following the retail sales figures for July showed a slowdown in consumer spending.

The Canadian dollar rose significantly against the greenback ahead of the inflation report due later today. Dollar/loonie was last trading at 1.2645. Economists are expecting monthly inflation to rise 0.1% against a decline of 0.1% in the prior month. Annually, the consumer price index is forecasted to hit 1.2% versus 1.0% gain reported last month.

Oil prices rose, with WTI last trading at $47.14 a barrel and Brent at $51.12. Gold prices spiked during the Asian session to last trade at $1,294.12 an ounce, its highest since beginning of June.