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AFEX Market Watch Mon 21st November 2016
Monday Nov 21st • 16:00 EUR ECB President Draghi speaks
Tuesday Nov 22nd
· 13:30 CAD Core retail sales MoM
· 15:00 EUR Consumer confidence
Wednesday Nov 23rd
· 09:00 EUR Flash Services PMI
· 12:30 GBP Autumn statement
· 13:30 USD Core Durable goods MoM
· 15:30 USD crude oil inventories
· 19:00 USD FOMC meeting minutes
Thursday Nov 24th
· All day US Thanksgiving
· 09:00 EUR German IFO business climate
· 09:30 GBP BBA Mortgage approvals
Friday Nov 25th
· 09:30 GBP Second estimate GDP QoQ
· 09:30 GBP Preliminary business investment
· 14:45 USD Flash services PMI
The market spent last week pricing in its expectations for a Trump Presidency which basically include higher US interest rates and a stronger Dollar across the board. This of course means a weaker GBPUSD but the UK inflation data released last week was not as strong as expected and when BoE Broadbent on Friday implied that the BoE was more focused on keeping as high levels of employment as possible rather than keeping inflation under control GBPUSD ended the week on a soft note. The main focus for Sterling this week is the Chancellor Phillip Hammond’s budget on Wednesday which the market has been told to expect a “reset for the UK economy”. With the Government still having to wait for the Supreme Court’s verdict on the triggering of Article 50, the pound is inlimbo and the Chancellor could well just present a “steady as she goes “ budget so that he has some powder left should the economy take a real dip. In this case, analysts don’t expect huge tax cuts or stimulus this Wednesday.
The Euro has had a streak of 10 losing days against the Dollar weakening some 6.5 % since Donald Trump became president elect and this has been preceded by a Q3 2016 range that had only a range of 3.53%. Last Friday ECB President Draghi didn’t say or imply anything about the EURUSD level event though we are now trading near the 2015 lows. He did say that the “Euro recovery still relies to a considerable degree on accommodative monetary policy” and as such analysts are still expecting an extension to QE to be announced in December. Draghi speaks again today but the market is getting nervous over the many risks to the Eurozone coming in the shape of Italian constitutional referendum (December 4), the Austrian Presidential elections (December 4), the UK Supreme Court Brexit hearings (December 5-8), the European Central Bank's policy meeting (December 8), and the Federal Reserve's policy meeting (December 14). Angela Merkel has now said she will seek a fourth term as Germany’s leader.
We’ve had 10 days in a row of Dollar strength against the Euro and it does appear that the market is pricing in a new paradigm. Last week Fed Chair Yellen didn’t say anything to put the market off expecting a rate rise in December but the market will look for confirmation of this when durable goods are released on Wednesday. We do have US thanksgiving holiday on Thursday but at the moment the interest rate markets are still pointing to Dollar strength. Wednesday sees the release of the last FOMC meeting minutes.
Commonwealth et al
On the back foot all week and without any major economic data points this week they will be at the mercy of the positive Dollar sentiment. Russia’s Putin said over the weekend that Russia was ready to freeze oil output and that there is a high probability of an Opec deal although it is not 100%. The Loonie has firmed on this news and was the only currency that made gains against the dollar last week.
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