Monthly Forecast: February 2019

Foreign Exchange - Monthly Forecast
February 2019
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
Since November of last year, the USD has been under pressure due to a number of factors. To illustrate the magnitude of the market's reassessment, one simply needs to look at the market's expectations for Fed rate increases. Towards the end of 2018, the markets were expecting two more hikes. Since then, the markets have pivoted to pricing in two cuts over the next two years at its most pessimistic point. Read more...
In our last outlook, we mentioned that we remained cautiously constructive on the euro in 2019 but expected the euro to remain pressured in the near term and the economic data has played out accordingly. Eurozone growth, which ended 2018 on a negative note, has kicked off 2019 by continuing its slide. Read more...
Brexit negotiations have been characterized by much activity but little actual progress. PM May finally put her Withdrawal Agreement (WA) to vote and suffered a defeat of historic margin. The government is now tasked with coming up with a Plan B as the March 29 deadline fast approaches. Read more...
On a month over month basis, the JPY finished the month of January pretty much where it started. However this high-level view masks the sharp volatility spike that strengthened the yen at the start of the year. The yen's ~4.5% one day appreciation was driven by uncertainty over the global economic picture (equity markets sold off sharply) and illiquid markets (longer than usual holiday season in Japan). Read more...
Over the past two months, the CAD has been pretty much unchanged. However this seemingly benign performance masks a volatile two months where the CAD weakened ~3.5% only to gain all that back and then some. This volatility is reflective of increased concern over slowing global growth, a reassessment of global monetary policy and negative risks to the domestic oil economy. Read more...
After spending all of 2018 in a downward trend, AUDUSD has experienced a bit of a bounce to start the year but still finds itself lower than where it was at the start of December. This slight rebound has been aided by positive news on the US-China trade conflict, which has reduced the number of AUD short positions as the market uses the Aussie dollar as a trade war proxy. Read more...
After sharply depreciating last year, the CNY has been one of the top performing Asian currencies since the New Year. This appreciation has been driven by the December trade truce with the US and the positive developments in the subsequent trade negotiations. Additionally, the downward trend in the CNY's fixing term illustrates China's central bank desire for a resilient currency during negotiations. Read more...
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This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. The Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
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