Poor ISM release


USD remained under pressure as poor economic releases caused another sell-off in the US equity market, which have fallen more than 800 points in the last two days. Tuesday’s ISM release was the lowest reading in more than 10 years. This was the second consecutive month of contraction for the index, as any reading below 50 signals an economy that is facing recession. Adding to the economic concern was yesterday’s release showing an easing in hiring from last month. Traders are now focusing on tomorrow’s release of Non-Farm Payroll to see if this economic slowdown is confirmed. Impeachment concerns added to the concerns of investors and kept pressure on the USD as the markets are concerned that impeachment proceedings will undermine trade negotiations with China. According to market analysts, continued impeachment proceedings could delay the U.S. from passing the United States-Mexico-Canada Agreement (USMCA).


EUR is higher despite the WTO ruling that the U.S. could impose tariffs on the European Union. The White House is planning to impose 10% tariffs on European-made Airbus planes and 25% duties on French wines, Scotch and Irish whiskeys, as well as cheeses from many of the EU countries. Eurozone retail sales improved in August, rising 0.3% month on month vs. -0.5% in July and expectations of 0.3%. On an annualized basis, Eurozone retail sales rose by 2.1% vs. the 1.9% expected. These releases are considered by traders to be “bullish” for the EUR.


UK Prime Minister Johnson’s new Brexit proposal, which includes plans to replace the Irish backstop, was not as good as expected for investors.  Once again, PM Johnson reiterated that the UK will leave the EU on October 31 whether there is a deal or not. GBP moved higher, although some analysts viewed this as more of a reaction to US economic numbers and a short-term covering of positions.


US economic concerns have seen the Japanese Yen once again move front and center as traders rush to safe haven currencies. Japan released their September Monetary Base, which increased by 3.0%, just below market expectations of 3.1%. The short term outlook for JPY remains positive as long as traders remain concerned about the global economy.


Commodity currencies have come under pressure this week, as traders sold following the easing of oil prices. Canadian economic growth is expected to hold near the expected level and this should encourage the Bank of Canada to maintain monetary policy and should provide support for the Canadian Dollar.


As analysts look towards next week’s renewal of trade talks between the US and China, they see a 60% chance of a small interim deal emerging. Both sides seem interested in achieving this outcome, and it would be a boost to the global equity markets. With concern over the weakening of the US economy heading into the 2020 election year, this outcome would be certainly welcomed.

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