FX market outlook

FX market outlook

Posted on Thursday, October 26 2017 at 8:37 am GMT+0000

ECB in focus; dollar eases in need of fresh catalysts

As the Asian session was about to complete, the euro was standing stronger ahead of the European Central Bank’s policy meeting, while the dollar was distancing itself on the downside from the highs it reached earlier in the week.

The dollar index, which measures the strength of the US currency versus the currencies of six major US trading partners, was 0.1% lower at 0737 GMT, falling for a third straight day and moving further below Monday’s three-week high of 94.02. At one point today the index hit 93.48, a six-day low. Dollar/yen was marginally lower, trading at 113.68. Yesterday the pair finished the day lower after earlier rising to a three-and-a-half-month high of 114.24. A slight fall in US yields also contributed to the dollar’s fall.

Dollar bulls boosted the greenback earlier in the week as well in the week that preceded on the possibility of a more hawkish Fed chair as well as on hopes for tax reforms. It now seems to be the case that fresh catalysts are needed on these fronts (or in other areas) to push the dollar higher. Preliminary third quarter GDP figures for the world’s largest economy will be released on Friday, while indications have been that President Trump will announce his Fed chair pick before his trip in Asia in early November.

Euro/dollar was 0.05% up on the day after rising 0.45% during yesterday’s trading to close above the 1.18 handle. Today’s decision by the ECB at 1145 GMT as well the press conference by President Mario Draghi at 1230 GMT are eagerly awaited by market participants. The central bank is expected to take a big step in the direction of policy normalization with the details of its new program having the capacity to significantly move euro pairs.

The British currency gave up part of yesterday’s gains during today’s trading. Pound/dollar was 0.2% down and euro/pound up by 0.2%, trading at 1.3240 and 0.8923 respectively. Yesterday sterling recorded hefty gains relative to both currencies after stronger-than-expected GDP numbers for the third quarter boosted expectations that the Bank of England will deliver an interest rate hike as it completes its meeting on monetary policy on November 2.

The loonie and the aussie continued trading near three-and-a-half-month lows relative to their US counterpart during today’s trading and the kiwi near a five-and-a-half-month low relative to the greenback. The dovish-perceived stance by the Bank of Canada as it completed yesterday’s meeting acted as a drag on the local dollar, while weaker-than-expected inflation numbers out of Australia yesterday put the aussie on a negative footing. The kiwi is weighted on uncertainty relating to the new government’s policies. Data on New Zealand’s trade balance released during today’s session were worse than expected though forex market reaction as the numbers became public was fairly limited.

In commodities, gold was 0.1% higher, trading at $1,278.00 an ounce. WTI and Brent crude were both lower by 0.3%, trading at $52.01 and $58.26 per barrel respectively.

Weekly jobless claims and data on the goods trade balance due at 1230 GMT, as well as pending home sales at 1400 GMT will be gathering attention out of the US. Minneapolis Fed President and FOMC voting member Neel Kashkari will be giving welcome remarks at a conference hosted by the Minneapolis Fed at 1230 GMT.