USD Weakness Returns

US dollar continues to retreat as trade tariffs risk a global trade war

Previous Day's Market Highlights

A quiet day for data meant that political news once again came to the fore as the driving factor behind markets. This was exemplified with investors piling into riskier assets and currencies on the news that North and South Korea are to hold direct talks. This saw USD/JPY rally 50bps in the morning session, while USD demand was seen across the board.

Macro data releases were mainly overlooked by traders yesterday, with the only surprise of note being the Swiss CPI figure showing an increase of 0.4% m/m, 0.1% above forecast. In the afternoon session, the Canadian Ivey PMI showing a strong reading of 59.6 – pointing to continued expansion in the Canadian economy.

There was a rush to safe haven assets over night however, after news broke of President Trump’s Economic Adviser Gary Cohn resigning. This was in protest at the recent trade tariffs that Trump has imposed, a further interesting development to the trade war that is heating up globally. Both EUR/JPY and USD/JPY dropped around 70bps on the news.

In the near term, Cable is likely to find support at the 1.3860 level (50 day moving average) with further support below coming in at 1.3570 (100 day moving average). To the upside, further USD weakness is likely to spur a rally back up to the 1.40 level, which has proved a significant resistance level for the pairing. GBP/EUR remains broadly rangebound between the 1.12 – 1.14 levels, any developments to the Brexit negotiations as well as shifts in monetary policy from the ECB (meeting Thursday) would likely act as a catalyst for the pairing to break out of this range.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1177 1.1453 1.1161 2.55%
GBP/USD 1.3878 1.4150 1.3711 3.10%
EUR/USD 1.2416 1.2556 1.2154 3.20%
GBP/AUD 1.7758 1.7999 1.7574 2.36%
GBP/NZD 1.9030 1.9456 1.8934 2.68%
GBP/CAD 1.7939 1.8057 1.7371 3.80%

Today's Market Highlights

Little in the way of tier 1 data releases in the European session means traders will look toward the North American session for trading opportunities. The main highlight from the European calendar for Sterling is the release of Halifax HPI figures for the month of February, expected to show a monthly increase of 0.4%. This is unlikely to have a major impact on Sterling with the driving factors of the market likely to remain the ongoing Brexit transition deal negotiations as well as the political instability and coalition talks in Italy. We also see the release of revised Eurozone GDP for Q4 2017, expected to show an expansion of 0.6%.

Increased volatility is likely to be experienced in the North American session with the first release of note being the ADP Non-Farm Employment change, a precursor for the US labour market report on Friday. This is forecast to show an increase of 194K employed people compared to last month. Traders will watch this number closely, to give an indication of the general health of the US economy.

Focus will then turn to the Bank of Canada meeting at 3pm. While no change is expected to the Overnight rate (hike probability is only 13%, according to interest rate swaps), all eyes will be on the rate statement and any change in tone – especially regarding the recent softening of Canadian macro data as well as the current spat regarding trade tariffs with the US.

BOC governor Poloz has already set a cautious tone regarding rate hikes, however it would not be a surprise if we see further repricing of the tightening path as a result of a less hawkish statement than previously. With GBP/CAD already trading at levels not seen since the Brexit vote, this may set the stage for further upside movement in the pairing.

Today's Economic Calendar

Time Currency Release Consensus Previous
08:30 GBP Halifax HPI m/m 0.4% -0.6%
10:00 EUR Revised GDP q/q 0.6% 0.6%
13:15 USD ADP Non-Farm Employment Change 194k 234k
13:30 CAD Trade Balance -2.5Bln -3.2Bln
15:00 CAD BoC Overnight Rate 1.25% 1.25%
15:00 CAD BoC Rate Statement