Morning Commentary: Anticipation and Expectations

Foreign Exchange - Morning Commentary
Anticipation and Expectations
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
Markets have been seesawing back and forth for days now as headlines have played havoc with market psychology and have sent the markets into either the optimistic or pessimistic camps only to reverse course again.  Over the past 48 hours, markets have remained optimistic and positive regarding the two key issues of the day as hopeful and positive headlines regarding the U.S.-China trade talks and Brexit negotiations have turned sentiment once again.

Global equities and interest rates appear to be headed for consecutive days of positive returns; the British pound (GBP) is up an amazing 3.4% over the past 48 hours while safe haven currencies like the U.S. dollar, Japanese yen and Swiss franc are declining. Even increased geopolitical tension in the Middle East with an Iranian oil tanker hit by missiles sending oil prices spiking higher has not derailed the near term optimism of the markets.

Regarding the British pound, it appears that the U.K. and EU have found more common ground and markets are anticipating an amended Withdrawal Agreement. Even though there are few new details, headlines regarding small upbeat breakthroughs have squeezed short GBP positions.  Many dire forecasts made over the past weeks and months regarding the Brexit negotiations have seen predictions for a GBP near $1.1000 or lower; today, freshly printed and updated forecasts have the GBP continuing to surge towards the high 1.2000s or low 1.3000s if a successful agreement can be reached.

With regards to the U.S.-China trade talks, President Trump needs a political victory as the impeachment inquiry gains momentum and he has lost favor with a number of key Senate Republicans regarding the decision to abandon the Kurds who did much of the heavy lifting regarding the elimination of the ISIS threat in the Middle East. While it is unclear what the final outcome of these two-day trade talks will include, markets sense a small but positive outcome that will lead the way for continued trade talks. Investors will probably not want to be short “risk” heading into this long weekend.
  • The Canadian dollar (CAD) is surging for a second straight day on the back of another blockbuster Canadian jobs report for September. Canadian economic data remains resilient despite U.S. economic data weakening and has allowed the Bank of Canada to stand pat despite two Fed rate cuts. Job gains totaled nearly 54,000 against expectations of a gain of nearly 8,000 with full time employment rising sharply by 70,000. This is two consecutive months of stellar job gains; the UR fell from 5.7% to 5.5% and hourly wages for permanent workers rose sharply by 4.3% widely beating expectations. Canadian interest rates are up sharply surpassing U.S. gains today sending the CAD to its best levels in a month.
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