- August 4, 2018
- Posted by: Trading
- Category: Currency Forecast
By Kathy Lien, Managing Director of FX Strategy for BK Asset Management.
Like the Federal Reserve’s monetary policy announcement, the U.S. report failed to help the . The jobs report wasn’t terrible but on a day when was already weak, the data miss in NFP and gave bulls a stronger reason to bail. Job growth slowed in July from 248K to 157K but the June data was revised upwards. The also declined and grew at a faster pace. U.S.–China trade tensions have taken a significant toll on USD/JPY. Earlier this week, the U.S. government proposed $200B in fresh tariffs on Chinese goods and on Friday, China responded with $60B in retaliatory tariffs. They also boosted the reserve requirement on foreign currency forwards from 0 to 20% in an attempt to curb weakness and the yen rose alongside the . The trade war is far from over and headline risk is limiting demand for USD/JPY and putting pressure on pairs like and .
For the first time in more than a month, closed below 1.16. The sell-off in the euro this week was mainly a function of U.S. strength as Eurozone fundamentals took a back seat to bigger stories. Data from the Eurozone was mostly weaker with stronger inflation offset by falling confidence, weakening growth and slower gains in retail sales. Germany’s is the only important report on next week’s calendar. Technically, the pair is vulnerable to additional losses after having ended the week at a 1-month low. We expect EUR/USD to test 1.15 and are watching for a possible move down to 128.
extended its losses Friday on the back of weaker and fresh comments from Bank of England Governor . He said “one hike a year isn’t a bad rule of thumb” and the “chance of a no deal Brexit is uncomfortably high.” “Some scenarios may require a rate cut.” Although the BoE raised by 25bp this month, all this talk of possible easing in a tightening cycle makes investors nervous so unless there’s progress on Brexit negotiations or data takes a turn for the better, GBP/USD will fall to fresh 1-year lows. Second-quarter , and numbers are scheduled for release on Friday.
dropped to a fresh 6-week low on the back of stronger trade data. Canada’s shrank to 626 million, which is a significant improvement from the prior deficit of -2.77B. Despite the U.S.’ tariffs on and , hit a record high thanks to robust demand for energy and aircraft sales. As a result, the market is pricing in a 77% chance of a in December. USD/CAD has broken below 1.30 and we expect the pair to extend its losses in the coming weeks if data continues to surprise to the upside.
The and dollars also ticked higher on the back of the recovery in the Chinese . Next week we’ll see if yuan weakness has affected the views of the Reserve Banks of and . Both the RBA and RBNZ are expected to leave monetary policy unchanged but their outlooks could be vastly different. The RBNZ has many reasons to be cautious while the RBA could find cause for optimism. When Australia’s central bank last met, it talked about progress in the labor market and pickup in inflation. Since then, data has improved. In New Zealand, however, data has taken a turn for the worse. Both countries face serious risks from slower Chinese growth and it will be interesting to see how they address it because so far, the RBA has stayed away from the issue while the RBNZ has concerns.
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