Moneyway Reports: Uncertainty as to the proposed U.S. tax plan has caused equities to falter, plus currency markets have been relatively quiet, while oil prices remain unchanged.
The Canadian dollar is the same, while there are no significant economic releases until next Friday, analysts will be watching for the Bank of Canada’s speech on Tuesday. Expectations are for the same story, caution and a good chance of a rate hike.
Rosalind Mathieson, Isabel Reynolds, and Ngueyen Dieu TuUyen of Bloomberg Report on TPP Negotiation:
After a day of confusion, a much-anticipated framework agreement on a Pacific trade deal was at risk of being scuppered, raising the prospect the pact — already many years in the making — could be delayed further.
Trade ministers from the 11 countries in the Trans-Pacific Partnership reached a tentative agreement in Vietnam on Thursday, according to an official with direct knowledge of the talks. However, a Friday meeting of TPP-country leaders to approve the plan was deferred and the deal is now in flux, the official said, asking not to be identified when discussing private matters.
Signs emerged late Friday that Canada could be holding up the process. Japanese Prime Minister Shinzo Abe said the Canadian delegation had said it was not yet ready for a leaders’ agreement, broadcaster NHK reported. Japan’s Economy Minister Toshimitsu Motegi is expected to comment later in the day.
XE Reports on Currencies:
EUR-USD edged out a fresh one-week high of 1.1662 after picking up bids following a dip under 1.1630. The market remains in sell-on-gains mode with regard to the dollar, following news that the Senate is delaying the implementation of its planned corporate tax cut. The debate on Capitol Hill remains ongoing, so market will be monitoring developments closely. The dollar didn’t take much solace from Fed member Williams repeating, in an interview with the BBC, his view that a December rate hike “makes sense”, with three more quarter-point hikes pencilled in for 2018. USD-JPY recovered poise after tumbling yesterday to an 11-day low at 113.09.. Sterling, after mostly trading softer over the last couple of days, managed to gather some support following forecast-beating trade and production data out of the UK. Cable logged a 2-session high at 1.3168.
EUR-USD edged out a fresh one-week high of 1.1662 after picking up bids following a dip under 1.1630. The market remains in sell-on-gains mode with regard to the dollar, following news that the Senate is delaying the implementation of its planned corporate tax cut. The debate on Capitol Hill remains ongoing, so market will be monitoring developments closely. Fed member Williams repeated, in an interview with the BBC, his view that a December rate hike “makes sense”, with three more quarter-point hikes pencilled in for 2018. EUR-USD has key resistance levels at 1.1687-91 and 1.1700.
USD-JPY has recovered poise after tumbling yesterday on news that the implementation of the Senate plan to cut corporate tax in the U.S. will be delayed by two years and the extent of some other taxes will be trimmed. The news sparked a steep sell-off in U.S. and global equity markets, driving demand for the yen, among other perceived safe haven currencies and assets. A subsequent report that Republican Senator Cornyn is looking to avoid a one-year delay seemed to throw markets a lift line. USD-JPY pair has recouped to around 113.40 after clocking a low at 113.09, which is the lowest level seen since October 31. We expect markets will remain sensitive to the ongoing tax cut debate, with the speed and breadth of tax reductions now in question. For now, the yen is likely to remain in some demand on dips, while the dollar is likely to remain a sell on rallies.
Sterling, after mostly trading softer over the last couple of days, managed to gather some support following forecast-beating trade and production data out of the UK. Cable logged a 2-session high at 1.3168, and the pound found a footing follow two-sessions of declines in the cases against the euro and yen. The UK’s trade deficit narrowed in September data, by GBP 700 mln, to GBP 2.75 bln. August’s trade gap was also revised lower, to GBP 3.45 bln. UK September production data, meanwhile, beat expectations for the second successive month, with the headline industrial output figure rising 0.7% m/m and by 2.5% y/y. The respective median forecasts had been for 0.2% and 1.8%, and August data were revised upward, to 0.3% m/m (from 0.2%) and to 1.8% y/y (from 1.6%). The data provide some good news amid concerns about the weakness of the UK government, which is exacerbating concerns about Brexit process. Regarding Brexit, British PM May will be meeting business leaders from both the UK and Europe on Monday, while Germany’s largest business group today warned that a hard Brexit is looking very likely as there isn’t sufficient time to reach a comprehensive deal by March 2019. Cable has resistance at 1.3168-70.
EUR-CHF has settled to a consolidation in the upper 1.15s. The 33-month peak seen in late October at 1.1712 has slipped off the radar screen, though we continue to anticipate an eventual return to 1.2000, which is the former trading floor of the SNB.
USD-CAD ebbed to a 16-day low of 1.2666, reaffirming an evolving downward trend with the pair’s two-month rally phase from sub-1.2100 levels looking to have stalled over the last week. BoC Governor Poloz in a speech this week reaffirmed guidance given last month by saying that “the economy is likely to require less monetary stimulus over time, we will be cautious in making future adjustments to our policy rate.” We project the next BoC rate hike to be in March. We expect USD-CAD to remain in a downward path for now. Resistance is at 1.2700-05, and support is at 1.2600-02.