Morning Commentary: Europe on the Rise…for Now

Foreign Exchange - Morning Commentary

Europe on the Rise…for Now

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Alan Rose
Alan Rose
Foreign Exchange Head Trader
In a market that is constantly buffeted by two-sided headlines, there is no shortage of short term volatility leaving many major currencies range bound while emerging market currencies continue to be under pressure. In the absence of any real concrete game-changing news, there will continue to be short term cycle changes and intraday volatility that moves the ball in one direction before moving it back again. The ECB meets later this week and is expected to remain dovish for now given all the uncertainty surrounding trade conflicts.
For today, European currencies are on the rise at the expense of almost all the emerging market currencies. A combination of factors is at play this morning and time will tell how long of an effect they will have on the markets.  Sweden had a national election yesterday and the populist anti-immigration party (Sweden Democrats) did not fare as well as expected; there is a relief rally taking place in the Swedish krona even though it could be weeks or months before a new coalition government will be formed.
In addition, Norway reported higher inflation than anticipated today, and more positive comments about the possibility of a Brexit deal in the next 6-8 weeks have propelled the Norwegian krone and British pound up nearly one percent on the session. The British pound (GBP) continues to see rapid changes in sentiment and positioning regarding Brexit headlines, but the GBP is nearly unchanged since August.
For now at least, European currencies are better bid in a market where positioning and psychology are also important factors. Emerging markets will remain pressured as long as U.S – China trade talks remain at loggerheads and the potential for one or more Fed rate increases is still a strong possibility. Until the dust clears, we encourage both importers and exporters to remain tactical.
  • The British pound has also gotten a boost today from a smaller than expected U.K. trade deficit for July and a GDP number for July that came in stronger than expected at 0.3%. The 3-month GDP change showing a 0.6% gain was also better than expected sending the GBP to its best levels over the past month.
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