Market News | Amana Capital
EURUSD Weekly: Euro Strengthens to 3-Year High of $1.23 Vs US Dollar Before Giving Up Some Gains
- Euro strengthened to a 3-year high of 1.23 vs the dollar before giving up some of its gains this week.
- Other crosses like the EUR/JPY, have remained relatively on the stable side for the most part of this week
- Few officials at the ECB showcased worries over the latest gains in the common currency
The EUR/USD currency pair strengthened to a 3-year high of 1.23 against the dollar before giving up some of its gains this week. The common currency received a boost above 1.2250 level, from sub-1.2100, following a broad-based decline in the greenback, on concerns over a plausible government shutdown if the U.S. Senate does not pass the stopgap funding bill. Following this, some European Central Bank (ECB) members expressed concern about the euro's rise, saying it has serious implications for the inflation outlook.
Further, other crosses like the EUR/JPY, have remained relatively on the stable side for most part of this week, although EUR/CHF stumbled for the third straight session, as the base currency lost a broad-based support after few officials at the European Central Bank (ECB) showcased worries over the latest gains in the common currency. Tuesday's 37-month high of 1.2323 would almost certainly be breached in the event if the Senate votes otherwise for the funding bill today.
The currency market has already priced-in an extreme probability that ECB President Mario Draghi, in a speech next week, will reiterate concerns over the euro’s rapid appreciation. The euro has already consolidated this week, following the comments from the central bank policymakers. Apart from these statements, the German political situation is of another risk for the single market currency, with Social Democrats hosting a special convention on January 21 to formally discuss with German Chancellor Angela Merkel’s Christian Democratic Union-led bloc.
Certainly, it is possible that Draghi’s comments will pull the euro downwards; market participants interpreted the minutes of the ECB’s December meeting as hawkish at a time when the euro traded 4% lower than current levels. Although the Governor will not comment on any specific exchange rate levels, he possesses the power of directing the Governing Council’s discontent with the speed of the recent spell of appreciation.
ECB Meeting in Focus Next Week
The European Central Bank will hold its first monetary policy of 2018 on Thursday, January 25. We not do expect any change in rates, QE, or forward guidance at the meeting. Communication tweaks remain conditional, in our view, on new staff projections and on the 2020 inflation mid-point still in line with the target.
Therefore we do not see them before March/April. Any near-term decision is likely to aim at maintaining market expectations on the first rate hike well into 2019, in line with our base case. In addition, the robust appreciation of the euro is creating some waves within the ECB, giving further ammunition to doves on the governing council. While this is unlikely to change the projected schedule for ending QE purchases, it reinforces our conviction that markets’ repricing of interest rate hikes in Q1 2019 is a little premature
The UK City of London policy head Catherine McGuiness says the potential number of jobs in the financial services industry likely to be lost due to Brexit will probably be at the lower end of the 3,000 to 75,000 range of previous predictions - City AM newspaper-. She opines that the situation might not be as dire as it could have been because of last month's EU/UK agreement to the principle of a transitional deal and to discussions about a future trading relationship. She also expresses satisfaction that PM May's govt has listened to and understood the City's position, according to a recent report from Reuters.
All the same the UK faces very tough negotiations ahead, in light of French President Macron's remarks stating that there can be no differentiated access to financial services for non-EU countries, adding that the UK would have to choose between the single market's status quo or a Canada-style agreement that has more restrictions, as previously suggested by EU's chief Brexit negotiator Barnier. The latest remarks from McGuiness should be seen in theory as supportive for GBP.
The International Energy Agency said that US oil production is set for 'explosive' growth this year in response to higher prices. The agency said this would offset a collapse in output from Venezuela and raised its forecast for non-OPEC supply growth in 2018 by 100k barrels/day vs last month to 1.7m bpd. Indeed, recovering price-sensitive shale oil production in the US should temper the rally in crude prices. WTI futures prices corrected earlier today to a 1-1/2 week low of USD62.85, but have subsequently rebounded to over USD63.50 (still down slightly on the day).
According to The Wall Street Journal source story, the Bank of Japan (BoJ) is optimistic about reaching its 2% inflation target within 2 years and is contemplating how to communicate any policy changes. The report confirms that the central bank will maintain its current policy targets at its January meeting.
We believe that there was no doubt about the latter, and we expect - based on other indications including more dovish source stories - that any policy changes will be a long time coming, and probably not happen this year.
In November, Japan national CPI came in at 0.6% y/y, core CPI ex-food is running at 0.9% y/y and CPI ex-food and energy at just 0.1% y/y. Markets will receive its December inflation data next week on Friday (Thursday at 23:30GMT in London).
Cryptocurrency Daily Update: Bitcoin, Ethereum, Bitcoin Cash, Litecoin and Ripple
- Major Cryptocurrencies trade flat after witnessing heavy selling this week.
- Bitcoin trades nearly flat at $11,500 mark, Ethereum prices hover around $1,000 mark
- Bitcoin Cash remain steady at $1,795 level
- Ripple is back above the physiological level of $1.50 level, up over 13%
BTC /USD (Bitcoin): Bitcoin traded nearly flat on Friday after remaining on the downfall this week in subdued session. After plunging to 4 digits earlier Wednesday, the most popular cryptocurrency prices rebounded above $11,200. The market capitalization of bitcoin rose to 198.32 billion, up from $193 billion a day before. At 11:20GMT, it was trading flat at $11,520.
ETH/USD (Ethereum): Following bitcoin, the world’s second-largest cryptocurrency in terms of market cap, Ethereum, also moved above the physiological level of $1,000 on the Bitfinex exchange after sinking to $770.10 on Wednesday. At 11:20GMT, it was trading 2.14% higher at $1,048.40.
BCH/USD (Bitcoin Cash): All major cryptocurrencies are in the green today. Right now, BCH also pushed back above $1,700 after succumbing to the dip on Wednesday. However, the entire crypto market is undergoing the tensions from regulatory authorities and that has poisoned investors’ sentiments throughout all bourses. At 11:20GMT, it was trading 0.64% higher at $1,795.5.
LTC/USD (Litecoin): Following the other cryptocurrencies, Litecoin also pushed higher above the $190 mark. At 11:20GMT, it was trading 3.95% higher at $196.76.
XRP/USD (Ripple): The third most popular cryptocurrency, ripple is back above the physiological level of $1.50 level on Friday after falling to parity on Wednesday. The digital currency started the week on a softer note, making it worse during Monday evening after it slumped to USD1.6554 at the time of closing, drawing cues from the negative sentiments hovering around. At 11:20GMT, it was trading 13.3% higher at USD1.62820.
Next week, in the United States advance release of Q4 GDP and consumer spending are the key data releases. Also, the European Central Bank’s first monetary policy meeting of 2017 will be closely watched, where it is expected to policy setting unchanged.
United States: We get the advance release of Q4 GDP next week, as well as existing and new home sales for December. The market expects it to grow around 2.8% annualized in Q4. The FOMC will enter a blackout period ahead of their January 30-31 meeting this Saturday.
Europe: In the euro area, markets expect the composite PMI to fall to 58.0 in January from 58.1 in December, with manufacturing PMI coming at 60.4 and services PMI edging down to 56.5. Consumer confidence should rise to 0.6 in January from 0.5 in December.
Germany: The SPD party delegates will vote on Sunday on whether or not to start official coalition talks with Merkel’s CDU/CSU. Manufacturing PMI should fall slightly to 63, while services PMI should remain flat at 55.8 in January. This should bring the composite PMI down to 58.6. Ifo business climate is expected to come at 117.2 in January from 117.2 in December.
United Kingdom: Markets expect the first estimate of Q4 GDP growth to be 0.4% q/q, same as in Q3 and y/y growth to 1.4%, down from prior 1.7%. Headline unemployment should be stable at 4.3% and regular pay growth should be stable at 2.3% in the three months to November. Market participants expect PSNB ex to be GBP5 billion in December, same as in December last year.
Central Banks: We expect the European Central Bank (ECB) to keep the rates, QE and forward guidance unchanged. Also, the Bank of Japan (BoJ) to keep its monetary policy setting unchanged on Tuesday.