Weekly FX Wrap: some belated fireworks, more Brexit bartering and Italian budget barbs


Another topsy-turvy week for the Dollar, but in contrast to its sharp retracement from last Wednesday’s new ytd peak, it has been a case of stopping the rot and regrouping after a midweek/post-midterm election slump. Indeed, the DXY looks set to end Friday’s session around 96.700 and almost 100 ticks off worst levels, with decent prospects of netting a small gain vs ‘opening’ levels circa 96.402, partly on the back of firmer than forecast US PPI data and an upbeat Fed keeping end of 2018 tightening firmly on the agenda,


The Loonie has essentially mirrored Greenback moves or been most inversely-correlated than other majors, with sliding oil prices exacerbating its marked downturn as the week draws to a close. Canadian data did not really factor, as Usd/Cad rebound to 1.3200 from circa 1.3050 at one stage.


Also largely oblivious to UK data, even when a barrage finally arrived on the final session of the week and included relatively encouraging Q3 GDP and a narrower than expected trade deficit. Instead, the Pound was split between Brexit headline-watching and external impulses with more reports about progress towards a deal with the EU offset by denials, in-house Government squabbling and above all else still no Irish border/customs union/back-stop resolution. Hence, Cable currently not far from where it started the week (1.3040) within a 1.2960-1.3175 range, and awaiting any news about another Cabinet meeting over the weekend.


The single currency has also endured a week of fairly extreme peaks and troughs, partly in lock-step with the Buck’s changing fortunes, but also due to more Italian-EU budget wrangling that came to a head with EC forecasts highlighting marked divergence of opinion on growth, deficit, debt reduction and servicing due to BTP spread widening (as well as higher outright yields). Some downbeat Eurozone macro releases (like services PMIs) also undermined the Eur to an extent, with Eur/Usd presently back down near the base of 1.1325-1.1500 parameters.


The Antipodean Dollars derived little if any independent impetus from either the RBA or RBNZ even though both were a bit more upbeat in terms of economic assessments. The ongoing US-China trade spat continues to hamper the Aud especially, while the Kiwi had its wings clipped by Governor Orr keeping the option to ease the OCR on the table. However, the former has recovered well from just below 0.7200 at one stage and is now just shy of 0.7250 having popped its head above 0.7300 at best, while the Nzd is hovering around 0.6750 and closer to the upper echelons of a 0.6630-0.6800 band.


A late week swoon in risk sentiment has helped the Jpy in particular claw back some lost ground vs the Usd, but it is still nearer the lows than highs on the aforementioned Buck revival having traded down to 114.10 and circa 113.00. Meanwhile, the Franc has paid some heed to several reminders from the SNB, including a Government publication containing quotes from Governor Jordan, about the ongoing need for direct intervention and policy accommodation given a still highly valued Chf and currency market fragility. Hence, Usd/Chf has been mainly above parity and not far from 1.1000 earlier on Friday, with the Eur/Chf over 1.1400 for the most part, even though the single currency has had bearish factors to deal with (as noted above).


A solid week from both a fundamental and technical perspective for the Scandi crowns has been derailed somewhat by significantly softer than expected Norwegian inflation data, not far in advance of Swedish CPI next week that could determine whether the Riskbank opts to hike in December or February 2019. Eur/Nok currently around 9.5450 vs 9.5000 at the base this week and just over 9.5800 at the other extreme, and Eur/Sek now circa 10.2750 vs 10.3530 and 10.2430 respectively.