The NAFTA talks were launched last year after Trump said the 1994 agreement should be overhauled to better favor American interests or Washington would withdraw.Officials do not anticipate major breakthroughs on the most intractable proposals during the latest round of talks in Mexico City, which are due to run until March 5.Those U.S. demands range from changes to automotive content origin rules and dispute resolution mechanisms, to imposing a clause that could automatically kill NAFTA after five years.
The dollar majors have been directionally challenged as market participants sit on their hands into the Congressional testimony of the new Fed chairman, Powell. USD-JPY has held a narrow range, logging a high of 107.10 before settling in the upper 106.00s, holding comfortably within yesterday’s range. EUR-USD logged an intraday peak at 1.2346 in early London trade before settling to the lower 1.2300s, leaving yesterday’s high at 1.2355 unchallenged. The New Zealand dollar came under pressure after NZ trade data showed an unexpected deficit in January of NZ$ 566 mln. NZD-USD logged a two-session low of 0.7273.
EUR-USD has drifted back to session lows, in the lower 1.23s, leaving an intraday peak at 1.2346. The range has remained within yesterday’s range, and yesterday’s high at 1.2355 has been untroubled. The January Eurozone ESI confidence reading came in near expectations, declining to a reading of 114.1 from 114.9 in December, which was revised up from 114.7. German state inflation data undershot expectations, while Spanish HICP overshot expectations. Focus now falls squarely on the Congressional testimony of the new Fed chairman, Powell. Most Fed watchers, ourselves included, expect he will signal a gradualist approach to tightening, maintaining continuity in approach from his predecessor, Yellen. This expectation was cited in equity market summaries yesterday as justifying the strong close on Wall Street, and markets will likely be sensitive to any perceived shift in stance from Powell relative to Yellen. EUR-USD remains in a consolidation that’s been persisting since late January (the pair’s lift to a 38-month high at 1.2556 on February 15th proved to be an anomalous rally). We expect EUR-USD to remain in a broad sideways phase for now. EUR-USD has resistance at 1.2346-50, and support at 1.2229-30.
USD-JPY has held a narrow range so far today, similar to other pairings as many market participants sit on their hands into the Congressional testimony of the new Fed chairman, Powell. The pair logged a high of 107.10 before settling in the upper 106.00s, holding comfortably within yesterday’s range. As for Powell, most Fed watchers, including ourselves, expect he will signal a gradualist approach to tightening, maintaining continuity in approach from his predecessor, Yellen. This expectation was cited in equity market summaries yesterday as justifying the strong close on Wall Street, though U.S. equity index futures have come off the boil in overnight trading, and stocks have been mixed in Asian, where Japan’s Nikkei 225 closed with a 1% gain but Chinese and some other markets posted losses. BoJ Governor Kuroda yesterday said that while the economy is expanding smoothly persistent stimulative monetary policy is needed. Inflation data last week showed core-core CPI lifting to 0.4% y/y, well off the BoJ’s 2% target. Technically, USD-JPY remains in a bear trend which started in mid January from levels near 113.00. Resistance comes in at 107.52-54.
The pound is trading with little direction presently, and is at near net unchanged levels on the day so far versus the dollar and other majors. Cable has settled in the mid-to-upper 1.39s after tumbling yesterday over a big figure from the day’s high to a 1.3928 low. The pound didn’t see a lasting bid following remarks by BoE Deputy Governor Ramsden, yesterday, a dove who now sees the case for hiking sooner than later. Markets are already discounting a further rate hike after the BoE last November lifted the repo rate for the first time in over a decade. The latest Reuters poll found a consensus expectation for the BoE to hike the repo rate another 25 bp May. Cable has been plying a sideways for nearly a month, and we expect more of the same for now. Support comes in at 1.3896-98. The next items on the UK agenda include consumer confidence and lending data from the BoE, on Thursday, and the February PMI surveys for the manufacturing and construction sectors, due on Thursday and Friday, respectively.
EUR-CHF lifted back to the mid 1.15s after a brief foray under 1.1500, with the cross settling back in familiar territory. The four-month low the cross saw earlier in the month at 1.1446 was left unchallenged.
USD-CAD has settled in the 1.2600s after last Thursday clocking a two-month high of 1.2761 yesterday. A trifecta of softer than expected Canadian CPI data on Friday (which slowed to 1.7% y/y from 1.9%), a broader fall back in the U.S. dollar, and firmer tone in oil prices (which have risen to three-week highs), brought the pair back under pressure after rallying from the 1.2450 area over the last week or so. The next Canadian data of note will be January industrial product prices on Wednesday, where we expect a 0.5% m/m gain. Q4 current account and December and Q4 GDP data are also due this week, on Thursday and Friday, respectively. The NAFTA renegotiation remains a font of uncertainty for the Canadian economy.