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By xemarketanalysis August 28, 2018 9:36 am
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    XE Market Analysis: No Writing on the Wall for New MEX-US FTA

    OVERVIEW

    • MXN strengthens while the Loonie soars higher following an agreement in principle between the US and Mexico

    • The US Dollar slides again on the month-end flow

    • Gold adds nearly $2 to its luster, trading around $1,215 and WTI consolidating near $69 a barrel

    HIGHLIGHT

    The Turkish Lira is once again under pressure, down nearly 2% on the day against the US dollar. Along with the Argentine Peso, the TRY has lost nearly 40% of its value in the spot market. Investors are selling the currency on sight, fearing the economic woes will continue. Political turmoil, along with poor economic fundamentals, and US sanctions are all contributing and adding stress on the Turkish Lira.

    US DOLLAR

    The new “big” bilateral trade agreement (in principle) between the US and Mexico remains the talk of the town. This new agreement is however short of any significant details; the first glance does give the impression of a deal with a populist touch ahead of US mid-term elections. There are no writings on the wall either.

    Canada can now join the trade talks, and it would be almost magical if they come to agree to a new FTA after months of wrangling over modernizing NAFTA. The Mexican Pesos moved higher as the news trickle in; the Canadian Loonie followed through, but lack of clarity over the new arrangement is expected to arrest any further movement.

    There are no major data releases today, and currency markets will once again be at the mercy of headline risks and the inevitable tweets. Oil futures continue to consolidate around $69, and Gold is pegged at $1,210.

    BRITISH POUND

    Markets in the UK re-opened today and investors are finding that their Pound brings in more buck. GBP/USD is up, flirting with the 1.29 handle as we wait for more Brexit-related news. While UK officials are optimistic that a UK-EU deal is possible, it still takes two to tango. The pair is expected to trade with caution.

    EURO

    The EUR/USD pair continues to move higher, touching a 4-week high in a thin market. The risk-on sentiment was back after US and Mexico were able to strike a new bilateral FTA. Expectations are running high that EU-US relations will improve and recent transatlantic trade spat was just a bump in the road. We expect month-end flows to continue to provide short-term support for the Euro.

    CANADIAN DOLLAR

    USD/CAD is trading near a two-month low after the announcement of a new MEX-US FTA. The market seems to believe that there will be some sort of agreement (in principle) between Canada and the US.

    Should this occur, it will be a masterstroke of negotiations. Should officials agree on new terms, it will replace the 21 Chapters of the current NAFTA agreement. We expect the Loonie to continue along a zone of turbulence throughout ongoing talks. NAFTA could come to an end, and three unilateral contracts, CUSFTA, MEX-US FTA, and CAN-MEX FTA could take its place.

    AUSTRALIAN DOLLAR

    AUD/USD is flat as we enter the North American session. Investors are disappointed after US President Trump damaged hopes saying it is “not the right time” to speak to China over trade. Recent trade tariffs are expected to have collateral damage on the AUD. We predict the pair will trade along broader market sentiment.

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