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By xemarketanalysis January 21, 2019 1:46 pm
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    XE Market Analysis: Currency Markets Trade Cautiously Amidst Political Gridlock

    OVERVIEW

    •  The US dollar index, DXY, is flat around 95.32, against other major currencies. 
    • Chinese macro data shows its economy is stalling, while their GDP is growing aa round a 6.4% rate.
    • NYMEX WTI Crude made gains of 0.17% to $53.90, a nine-week high.

    HIGHLIGHT

    The Euro has moved into a consolidation zone against the greenback, trading around the mid-point of 1.13. The market is bracing itself for the ECB’s policy decision this week. The European Central Bank is expected to stick to its current stance on interest rates and is widely expected to sit tight throughout the summer. Ongoing Brexit uncertainty and fear of global slowdown have been weighing on the EUR/USD pair.  We could see some volatility creeping in as we move closer to key decisions on Brexit this Thursday.

    US DOLLAR

    The US dollar starts the week on a cautious footing as the US government shutdown continues and political gridlocks persist along with the Brexit in the UK. Liquidity is very thin as banks in the US are closed to observe Martin Luther King Day. The currency market seems to demonstrate a limited reaction to Chinese data announcements which confirmed their economy is stalling. GDP for the quarter slowed to 6.4% from 6.5% and unemployment creeping higher to 4.9%. WTI Crude oil is up 0.13% to trade near a nine-week high but cannot generate enough buying interests for commodity currencies.

    BRITISH POUND

    The British Pound is wearing the crown as the best performing G-10 currency today. GBP/USD is up 0.20% on the day after PM May signaled she would not support a second referendum and “remains committed” to table a deal before Article 50’s expiration on March 29th. In May's statement to the Parliament, she said she believes the issue around Northern Ireland can be resolved, which injected new optimism for the Sterling.

    EURO

    EUR/USD is sliding lower, trading around the mid-point of 1.1300s.  Data released earlier today showed inflation is still soft in Germany with producer prices declining 0.4% in December 2018. We expect the pair to remain subdued as market repositions itself ahead of ECB meeting this Thursday. The economic projections from Draghi and the ECB will be key to set the next directional move.

    CANADIAN DOLLAR

    The Canadian dollar is trading lower vis-à-vis its major peers amid global trade concerns. The CAD is down 0.3% in the absence of any significant data releases. The IMF report also downgraded Canada's economic growth projections from 2.0% to 1.9% in similar recent moves from the Bank of Canada. Trade tensions and household debts could impact future Canada's economic outlook.

    AUSTRALIAN DOLLAR

    AUD/USD is trading in negative territory, down 0.17% on the day. The Aussie came under pressure after conflicting reports on no to little progress on US-China trade talks. Meanwhile, HIA New Home Sales fell by 6.7%, its lowest level since late-2012. Recent credit tightening rules have been a crucial factor contributing to the market slipping into  a “contractionary phase.”The Japanese yen is strengthening against the greenback as concerns over US-China trade talks. There are reports that officials from both sides are very far apart on the topic of intellectual property. The USD/JPY is expected to trade in narrow rate ahead of key BoJ meeting this Wednesday. The IMF also upgraded its economic growth projection for Japan and underpinning today’s JPY move.

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