FX market outlook

FX market outlook

Posted on Wednesday, September 13 2017 at 8:24 am GMT+0000

Euro finds support on news of greater EU integration; Dollar ticks down

Currencies were trading quietly during the Asian session ahead of a busy calendar on Wednesday, with markets reacting little to the latest North Korean threats. The dollar weakened slightly with investors expecting inflation data to be released later today, while the euro ticked up after news stated that the President of the European Commission Jean-Claude Junker will call for more EU integration in his speech at the European Parliament later today.

The dollar index was trading 0.08% down in Asia at 91.87 with investors being less concerned about the renewed North Korean warnings yesterday and more cautious about US inflation data released during the European trading hours. In particular, the US producer price index is anticipated to give more insight on the inflation path with analysts projecting the monthly index to turn positive to 0.3% in August after it dropped by 0.1% in the previous month. This could also affect the Fed’s judgment on interest rates next week when policymakers will kick off their policy meeting.

Dollar/yen slipped to 110.10 following a strong rally yesterday which led the pair to a two-week high of 110.28 early today.

Meanwhile, PPI figures out of Japan came in weaker than expected for the month of August but a business survey indicated an improvement in business confidence. Japanese producer prices rose from 2.6% y/y seen in July to 2.9%, missing the expectations of a rise of 3%. On the other hand, the Business Sentiment Large Manufacturing Conditions Index jumped by 9.4%, surprising analysts who expected the index to decrease by 2.8%.

In Europe, the President of the European Commission, Jean-Claude Junker, will give a speech in Strasbourg as the EU’s State of the Union address. Rumours are for the President to call for greater EU integration, highlighting the economic strength of the region. Besides that, the Daily Telegraph stated today that Junker’s top aide, Martin Selmayr, said in a meeting with EU diplomats that countries wishing to stay under the European concept after Brexit will have to switch their national currencies to euro.

Following the above news, the euro climbed to $1.1980, while the pound moved higher to $1.3323, a few hours before the Office for National Statistics publishes UK labor data.

In other currencies, the kiwi rebounded to $0.7300 during early Asian hours after New Zealand’s ruling National Party is marginally ahead of the opposition party in the latest average of polls. Its Australian cousin rose as well, climbing to $0.8032 as the Westpac Consumer Sentiment reached the highest growth since May 2016.

Looking at energy markets, oil prices were down on the session digesting the results from the monthly OPEC report and the API weekly numbers both released yesterday. The API figures for the week ending September 13 showed an increase of 6.181mn barrels in US crude oil stocks while the OPEC report revealed higher demand forecasts for 2018.

WTI crude edged down by 0.12% to 48.17 and Brent fell by 0.24% to $54.15.

Regarding gold, the precious metal weakened to $1,331 per ounce amid stronger risk-on sentiment