US dollar

Short term outlook
Neutral
Medium term outlook
Bearish
DAILY UPDATE

The US dollar is mostly higher today, and is currently rising against all major currencies. The dollar is strongest against the Australian dollar, the euro, and the Japanese yen. Earlier this week, FOMC minutes raised the risk of a faster pace of rate hikes, driving up US Treasury yields and causing the dollar to sell off against Japanese yen. Over the last two days, US Treasury yields have moderated. Looking at US equity markets, the S&P 500 ended the day higher yesterday. This morning, Asian equity markets such as Japan's Nikkei 225 is higher while Hong Kong's Hang Seng Index is flat. As bond yields moderate and risk sentiment improves, the US dollar is gaining against the Japanese yen. Turning to economic data, initial jobless claims were better than expectations. In other news, Federal Reserve Vice Chairman Randal Quarles said that the US should continue raising rates at a moderate pace. He also said that current US policy "remains accommodative". Finally, he stated that the US economy "appears to be performing very well". Both actual US economic data and the Fed's outlook on the economy has been improving this year. Our short-term outlook on the dollar is neutral, while our medium-term outlook remains bearish.   

USD/JPY is up today and currently trading above 106.90. EUR/USD is down and trading above 1.230. The pound is flat, and GBP/USD is currently above 1.3940. 

Looking at US economic data this week, there are quite a few Federal Reserve speakers. Markit Composite PMIs (55.9 vs. 54.4 expected) were ahead of estimates while existing home sales (5.4m vs. 5.6m expected) fell below estimates. FOMC minutes suggested an upgraded outlook for growth and inflation. Initial jobless claims (222k vs. 230k expected) beat expectations. Federal Reserve members signaled an improving outlook for the economy. Later today, Dudley (another voting member of the Fed) will deliver a speech. Last week, the consumer price index was ahead of consensus estimates.

Euro

Short term outlook
Neutral
Medium term outlook
Bullish
DAILY UPDATE

The euro is mostly lower today after rebounding yesterday. The common currency is selling off against the US dollar, British pound and the Canadian dollar. ECB minutes released yesterday indicated that policy makers felt it was too early to communicate a move towards less accommodative monetary policy. However, minutes did suggest that the ECB is increasingly confident regarding its outlook for inflation. As economic growth across the Eurozone has improved lately (a topic we covered in a broader  commentary on the euro), expectations are rising for the ECB to signal an end to its asset buying program. As Northern European countries are losing patience with the ECB's easy-money policies, the Bank is more likely to exit its asset buying program in the second half of this year. Turning to data, Germany's IFO survey broadly missed consensus estimates yesterday. Recent data from the Eurozone has been surprisingly weak following strong growth last year. While figures suggest ongoing expansion, the consensus has consistently overestimated the pace of future growth. Our short-term outlook on the euro is neutral, while our medium-term outlook is bullish.  

EUR/USD is currently down slightly and trading above 1.230. The euro is up slightly against the yen, with EUR/JPY trading above 131.70. Finally, the euro is down against the pound, with EUR/GBP above 0.8820.

Looking at economic data from the Eurozone this week, we’ll see a fair number of sentiment surveys and the Eurozone consumer price index. Spain’s Luis de Guindos was selected to be the next European Central Bank Vice President at the Eurogroup meeting. German producer prices were above expectations (2.1% vs. 1.9% expected). Eurozone consumer confidence missed estimates (0.1 vs. 1 expected), but the ZEW survey (29.3 vs. 28.4 expected) for the monetary union was ahead of expectations. Composite PMIs (57.5 vs. 58.5 expected) missed consensus estimates. German IFO survey expectations (105.4 vs. 107.9 expected) were below consensus estimates. The ECB’s January meeting minutes suggested caution regarding normalizing monetary policy. Later today, we’ll see Q4 German GDP growth and the Eurozone consumer price index. Last week, German consumer prices met expectations.

British pound

Short term outlook
Neutral
Medium term outlook
Bullish
DAILY UPDATE

The British pound is mostly higher today, and is currently rising against the euro, the Australian dollar and the yen. Note that pound sterling is falling against the US dollar. While economic data and Brexit-related tensions are weighing on the currency, the pound is receiving some much-needed support from rate hike expectations. Looking at economic data, both the second release of UK Q4 GDP and year-over-year business investment missed consensus estimates yesterday. Recent economic data from both the UK and the Eurozone has been particularly disappointing, although the outlook for future growth remains positive.

In political news, Theresa May has ended a country retreat with most of her senior colleagues designed to win support for her "three baskets" approach to a future relationship with the EU. Under the plan, three key sectors would approach the EU using a different strategy. In some areas (such as auto manufacturing), rules will be closely aligned to existing EU rules. In other areas, the UK is looking to develop its own regulations. The FT and the BBC are reporting that the talks were fruitful, with both anti and pro-Brexit Conservatives mostly happy with May's approach. Unfortunately, the European Commission has rejected Theresa May's "three baskets" approach to a future relationship with the EU in a set of published presentation slides. Specifically, the Commission stated that "if UK aspires to cherry pick [there will be a] risk for integrity and distortions to proper functioning of internal market". May is seeking to end the European Court of Justice's jurisdiction over the UK, while retaining a high degree of access to the single market. Our short-term outlook on the pound is neutral, while our medium-term outlook is bullish. 

GBP/USD is currently above 1.3930. EUR/GBP is down, with the exchange rate above 0.8820. The pound is up against the Australian dollar and flat against the Canadian dollar. GBP/AUD is currently above 1.7820, while GBP/CAD is above 1.7720.

Looking at UK economic data this week, we’ll get UK employment data as well as UK inflation report hearings. UK 3-month wage growth (2.5% vs. 2.4% expected) beat expectations but employment (88k vs. 173k expected) fell below estimates. Bank of England Governor Mark Carney provided an upbeat forecast during inflation report hearings. Q4 GDP (1.4% vs. 1.5% expected) and YoY business investment (2.1% vs. 2.4% expected) both missed estimates. Last week, the consumer price index was slightly ahead of expectations.

Japanese yen

Short term outlook
Bullish
Medium term outlook
Bullish
DAILY UPDATE

The Japanese yen is fairly mixed today. The currency is flat against the US dollar and the euro, while rising against the Australian dollar. Thanks to an improvement in risk sentiment, the yen is no longer appreciating. Earlier this week, the currency strengthened after US FOMC minutes caused a significant sell-off in equities and commodities. As a safe haven currency, the yen tends to appreciate during downturns while weakening when global risk appetite rises. Turning to Japanese economic data, reactions in the yen were muted following recent inflation figures (which met expectations). As the Bank of Japan remains committed to its easy-money policies, expectations for monetary tightening remain fairly weak. As Governor Kuroda as been appointed to a second term, few expect the BoJ to make significant changes this year. Our short-term and medium-term outlook on the yen remains bullish.  

USD/JPY is currently trading above 106.80. EUR/JPY is currently flat and trading above 131.580.

Looking at Japanese economic data this week, markets will be focused on trade balances and the national consumer price index. Export growth (12.2% vs. 10.3% expected), import growth (7.9% vs. 8.3% expected) and the merchandise trade balance (-¥943.4b vs. -¥1,002.0b expected) were all ahead of expectations. The Reuters Tankan survey (29 vs. 35 prior) was lower than the previous print. Nikkei manufacturing PMIs (54 vs. 55.2 expected) missed estimates while the all-industry activity index (0.5% MoM) met estimates. Cross-border stock (¥127.1b) and bond (¥-553.1b) investments continue to suggest net inflows into the country. The national consumer price index (0.9%) met expectations. Last week, GDP growth numbers missed estimates by a significant degree.

Australian dollar

Short term outlook
Neutral
Medium term outlook
Bullish
DAILY UPDATE

The Australian dollar is weaker today, and is currently selling off against all major currencies. AUD is weakest against the British pound and the US dollar. Looking at the Dow Jones Commodity Index (a weighted measure of commodity prices), commodity prices are mostly lower today. As a commodity exporter focused on China, the Australian dollar is highly correlated to global commodity prices. Recent weakness in the sector is thus weighing on the Aussie. Looking at Chinese financial markets, Hong Kong's Hang Seng index ended the day lower. Given Australia's significant trading relationship with China, falling risk sentiment in the country tends to have an adverse effect on AUD. Our short-term outlook on the currency remains neutral, while our medium-term outlook is bullish.  

AUD/USD is down today and trading just above 0.7820. EUR/AUD is up and trading above 1.5740. GBP/AUD is up and trading above 1.7860.

This is a fairly light week for economic data relating to the Australian dollar. The RBA’s meeting minutes suggested that the Bank remains on hold. RBA Assistant Governor Bullock stated that mortgage stress in Australia remains low. The wage price index (2.1% vs. 2% YoY expected) beat consensus estimates. Last week, Australian jobs were slightly ahead of expectations. However, the number of full-time jobs fell.

Canadian dollar

Short term outlook
Neutral
Medium term outlook
Bullish
DAILY UPDATE

The Canadian dollar is fairly mixed today. The currency is flat against the US dollar and the euro, but weaker relative to the British pound. While crude oil prices surged yesterday (following lower inventory data as we wrote in our crude oil daily update), the Canadian dollar failed to benefit thanks to poor retail sales figures. Retail sales numbers from December were significantly below estimates, leading markets to question the outlook for economic growth. While expectations of strong growth and more rate hikes have supported the Canadian dollar this year, the outlook for growth is increasingly mixed. Following world-beating GDP growth figures in 2017, the Canadian economy is likely to be weighed down by NAFTA-related issues and a weakening commodity sector in 2018. While our medium-term outlook on CAD remains bullish, recent weakness may lead us to reconsider our outlook over the coming weeks. Our short-term outlook on the currency remains neutral. 

The USD/CAD exchange rate is currently above 1.2710. The euro is flat against the Canadian dollar, with EUR/CAD currently above 1.5650. The pound is up against the Canadian dollar, with GBP/CAD trading above 1.7760.

This is a fairly light week for Canadian economic data. MoM retail sales (-0.8% vs. 0.2% expected) missed estimates by a wide margin. Today is the key day, and we’ll get the January consumer price index and core CPI. Last week, manufacturing sales missed estimates by a wide margin.

Gold

Short term outlook
Neutral
Medium term outlook
Bullish
DAILY UPDATE

After strengthening yesterday, gold prices are trading lower today. The US dollar is broadly higher today as it rises against the euro and the Japanese yen. As gold weakens as the result of a stronger currency, the precious metal is selling off today. Looking at US Treasury yields, bond yields have moderated in the last two sessions as rate hike fears recede. Despite falling nominal interest rates, gold continues to sell off thanks to a rising dollar. As we wrote in a longer commentary on gold, we remain mildly bullish on gold as both the US dollar and bond yields are more likely to fall in the coming weeks. Yesterday, we downgraded our short-term outlook on gold as momentum runs out of steam. Our medium-term outlook remains bullish. 

After its most recent top around $1,353, gold is now above $1,326.

Crude oil

Short term outlook
Neutral
Medium term outlook
Bullish
DAILY UPDATE

Crude oil prices are mostly flat today after rising sharply yesterday. Data from the US Energy Information Administration suggested that crude stocks fell yesterday. Against consensus estimates that called for stocks to rise by 2.4m barrels, stocks fell by -1.6m barrels instead. Crude oil prices were up sharply following the news. Looking at WTI, the benchmark ended the day higher by more than $1. Looking deeper into EIA numbers, imports fell below 5 million barrels per day, the lowest numbers since the agency began recording the numbers in 2001. Lower imports and pipeline outages connecting crude oil exports from Canada may be the cause of falling stocks this week. Turning to exports, the US exported more than 2 million barrels per day according to the latest figures. The record high (2.1m bpd) was achieved last October. Despite accelerating exports, crude prices strengthened thanks to the unexpected draw down. Our short-term outlook is neutral, while our medium-term outlook on crude remains bullish. 

WTI is currently trading above $62.60. Brent crude is currently above $66.20.

Looking at US crude oil stocks, the most recent EIA figures (February 22) showed falling crude oil stocks and rising gasoline inventories. Crude oil inventories were much lower than estimates (-1.6m vs. +2.5m expected). Gasoline stocks were up (+0.3m vs. -0.5m expected) while distillate stocks (-2.4m vs. -1.5m expected) were down. Looking at reactions in markets, crude oil prices were up following the EIA report.


Looking at last week’s Commitment of Traders report, the only notable changes were relating to net positions in the Swiss franc, Canadian dollar and British pound. Changes in positioning were fairly limited for the US dollar, euro, gold and crude oil. Crude oil positions, based on 3-year trailing averages and net speculator positions as a proportion of total open interest, remains at a bullish ex…

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Following the global stock market sell-off earlier this month, the euro was quick to recover most of its losses in a short period of time. While other currencies (such as the Australian dollar or the British pound) never fully recovered, there was no shortage of dip buyers looking to go long the euro. Looking at EUR/USD, it took just four trading days to recover to the critical 1.25 level after t…

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Tags: Euro

Since early 2017, gold has strengthened from lows below $1,080 to around $1,340 today. The underlying factors that have helped gold strengthen since that time remain intact. We argue that gold should continue strengthening in the longer-term thanks to (1) moderate sentiment, (2) continued weakness in the US dollar, and (3) a weak outlook for real interest rates. While recent price action is somew…

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Tags: Gold

Following an eventful week in financial markets, this week’s Commitments of Traders report shows quite a few significant changes. Firstly, net long positions in the euro and the British pound are no longer at bullish extremes. Secondly, open interest in most currencies and commodities (except the yen) has fallen substantially. Following intense volatility, traders are more hesitant to maintain la…

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Looking at the British pound today, concerns regarding Brexit and the stock market rout are outweighing the Bank of England’s positive economic outlook. As a currency that benefits from rising risk appetite, pound sterling has been selling off sharply in February thanks to fears regarding elevated asset prices. While Bank of England Governor Mark Carney helped the pound last Thursday after saying…

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Looking at this week’s Commitments of Traders report, bullish extremes continue in the euro, British pound and crude oil. Looking at net speculator positions as a proportion of open interest, long crude oil positions are the most at risk. While euro and British pound net positions are elevated relative to historical averages, open interest has also grown over time. Thus neither currency look exte…

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Tags: Euro

In 2013, when shale oil was in its relative infancy, Saudi oil minister Khalid al-Falih asked reporters to stop asking him questions about shale oil. “Leave us alone and leave all these issues. We had enough of shale oil and talks of shale. Please talk about anything else,” he snapped in response to a question about OPEC’s response to shale. Looking at 2017, accelerating US production failed to d…

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Tags: Crude oil

For a currency that strengthens when global growth accelerates, recent moves in the Australian dollar have been fairly disappointing. While the currency rocketed higher between mid-December and late January, the Australian dollar has sold off sharply in recent weeks. The currency first began weakening against the Japanese yen, which led us to downgrade our short-term AUD/JPY outlook to neutral on…

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The US dollar currency index, a measure of USD against six major peers, declined by 9.9% in 2017. Last month, the currency index continued declining and fell by another 3.3%. Given the speed of the recent decline, the US dollar started looking oversold according to technical indicators around mid-January. While we warned that the currency was looking oversold in several recent editions of our US …

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Tags: US dollar

When will the Canadian dollar rebound? We take a closer look at the Canadian dollar future forecast and what the latest Commitments of Traders report says about the currency. Bank of Canada remains cautious - impacting trader optimism, but better data has us rethinking an earlier prediction.

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