While the EUR was the over-all winner last week, the USD showed considerable strength, pushing stronger on supportive fundamentals and, most importantly, strong technicals (more below). Although there were several economic releases of note – for example, Durable Goods Orders, a notoriously volatile number, coming in at -0.1% vs call of +0.1% and CAPEX (non-defense + ex-aircraft) orders down -1.2% vs call -0.1% and others – these soft readings were eclipsed by Friday's first look at Q3cc GDP. The headline numbers were excellent and subject to future revision, but do support the notion of a Fed hike in December. In Q3 the US economy grew +2.9% vs call of +2.5% and better than double the Q2 annual rate of +1.4%. Mr. Market was impressed and took both equities and the USD higher; the latter not hugely as the currency had been strengthening all week, so there was a measure of profit-taking by traders. The CAD traded in a relatively tight range after Bank of Canada Governor Stephen Poloz, while renewing the BOC's commitment to a 2% inflation target last Monday, clarified the bank's stance on economic stimulus. In a word: Nada. While rate hikes are far off in the future, rate cuts are not being seriously considered at present despite his remarks of two weeks ago. Traders had been selling the loonie but shifted tack immediately on this news. There was a near-total dearth of domestic economic news for players to digest, so the currency traded largely on US and overseas developments and, considerably less so, on the gyrating price of oil. The correlation is actually much less than one might expect for the so-called 'Petroloonie".
Speaking
of crude, OPEC appears to be having some (not-unexpected) difficulty
keeping its members and associates in line on proposed production
freezes. To the extent the cartel appears united, crude rallies but
when Russia or Iraq or Venezuela start demanding exemptions or the like,
crude weakens. WTI traded north of $50 USD/bbl but seemed to lack
conviction. Some analysts are now openly sceptical of OPEC's
ability to enforce discipline in its ranks and one researcher is calling
for crude to drop to $30 USD/bbl in the near future.
Elsewhere, GBP rose and fell on
changing views of how the whole Brexit/Article 50 scenario will play
out. Sterling did rise on Thursday's release of Q3 GDP (+2.3% vs
call +2.1%) which, once again, seemed to confirm continued domestic
strength, gainsaying the anti-Brexit pundit class, but the currency is
still vulnerable to the whole Brexit issue. On the very next day, Friday,
GBP tumbled after a court in Northern Ireland affirmed the British
government's right to proceed with the whole Brexit process as currently
structured. What this means to investors is that sterling, for at
least the next long while, will be driven by headlines in addition to
fundamentals and technicals.
The JPY traded weaker in advance of
Bank of Japan meetings being held today. Earlier this year Prime
Minister Abe had announced that a 'comprehensive, bold economic stimulus
package' would be released this fall. Since that point nothing
substantial has happened, aside from 10 year bond yield targeting, but
Mr. Market believes in being prepared so the Yen sold off in
anticipation of further economic stimulus of some type. (The fact
that all these stimulus packages announced over the years by the BOJ have
had, on balance, minimal effect is best left unsaid.)
The EUR held relatively steady on a
lack of (bad) news in the EU and developments at the ECB. Deutsche
Bank surprised with a better-than-expected earnings report. Monte
dei Pasche, the floundering Italian bank, managed to survive another week
while looking for a capital infusion. The Canada-EU trade accord
surmounted a major barrier when the Belgian region of Wallonia agreed to
sign on to the deal, thus clearing the decks for eventual
ratification. As for the ECB: analysts now believe the bank will
renew its 80 billion EUR monthly bond purchases come next March.
The bank is slated to discuss the issue in December, and ECB President
Mario Draghi has indicated in the recent past that monetary accommodation
will continue. He had also dismissed any talk of an abrupt end to the
quantitative easing program, so traders anticipate no change next March.
Finally, we draw our readers'
attention once again to a very strong USD bullish signal. The
so-called 'Golden Cross', where the 50 day moving average (in blue)
crosses above the
200 day moving average (in red) is now confirmed, and traders have taken
note. The index has surged about 5% this month. Assuming no
negative surprises with the economy and or the November 8th US
Presidential election (big if now with the FBI involved again) and a
December Fed rate hike, the index could mount a challenge to the 100
Level. Having said that, the index did snap a three
week advance and the technical indicators are warning that consolidation
or correction may be in order - the RSI that did not make new highs with
prices and the MACDs are on the verge of crossing lower.
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