Gaining momentum overnight


The USD gained momentum overnight, benefited by “positive” trade comments as well as “month-end” rebalancing needs. Traders were seen taking risk off and this helped USD as well. Economic releases including Chicago PMI and consumer sentiment for August will be released today. Analysts are watching all these releases to see how the US economy is doing and whether or not any prediction of FOMC moves can be made based on them. U.S. Treasury yield inversion also eased a bit on Thursday helping the USD.


EUR remains under pressure as poor Eurozone economic numbers, as well as expected easing by the ECB, weigh on the single currency. Incoming ECB President Christine Lagarde said on Thursday that the ECB still has room to cut interest rates if needed, even though this may pose “financial stability risk”. She also said that the ECB has a “broad tool kit at its disposal and must stand ready to act”. Lagarde will be taking over for Mario Draghi on November 1, while the next ECB meeting is September 12.


Brexit and poor economic numbers are keeping pressure on GBP. UK consumer confidence fell to -14 in August, down from last month’s -11, and missing the expectation of -11 again. PM Boris Johnson has suspended parliament for more than a month. By doing this, he is attempting to dodge a possible no-confidence vote as the UK prepares to leave the European Union on October 31. While opposition leaders have vowed to use every mechanism possible to stop a no-deal Brexit, it looks inevitable that this will occur.


Risk off trades, as well as positive trade talk news, has taken some steam out of safe haven buying and puts the JPY on the sidelines. Economic data released from Japan was mixed as industrial production rose 1.3%, while retail sales dropped 2.0%. The IP number was well above the 0.3% expectation and was supported by an increase in the production of automobiles. This number was considered a hopeful sign that manufacturers were weathering the global slowdown and escalation of the US-China trade war.


The Canadian Dollar moved higher overnight as crude oil prices were higher, as well as better than expected Canadian Current Account numbers. Q2 GDP numbers are now on the trader’s radar. Market consensus is for an annualized 2.0% growth rate versus a 2.1% rate prior. Analysts expect to see a solid performance from the Canadian economy.  


China seemed to back down on retaliatory tariffs against the United States as further negotiations continue. Many analysts are looking at China to “wait out” the trade war and focus more on growing their domestic economy. Analysts also expect China to drag out negotiations through the US presidential election to make it a focal point for voters. One economist described the current Chinese economic strategy as one of “endurance”, and he expects the Chinese to diversify supply chains and develop trade relations with other currencies, reducing reliance on the US.

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