The Week Ahead: A Stable Imbalance

Foreign Exchange: The Week Ahead
A Stable Imbalance
Share this story:
Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
The recent flare up between the US and Iran notwithstanding, geopolitics over the past couple of decades have actually been quite stable.  For context, the Thirty Years’ War between 1618 and 1648 was one of the most devastating conflicts in history.  Initially, it began as a religious conflict but eventually morphed to a greater power struggle. 

In total battles, plagues and famine claimed about 8 million lives.  Ultimately the fighting ended with the Treaty of Westphalia that established concepts including sovereignty, peaceful co-existence of nations without interference in domestic affairs as well as the use of diplomacy to resolve conflicts.    

However, recent geopolitical stability doesn’t mean that the world has reach an equilibrium.  China’s emergence, the rise of nationalism and de-globalization all illustrate that conventions that the world operates under are continuously being put into question.  As a result, globalization, which was a powerful force holding the global community together the past two decades, has dropped well off levels seen before the Great Financial Crisis. 

This matters because globalization not only tends to be one of the most powerful growth drivers but also because global economic uncertainty still sits around its highest level in 3 decades.  These factors, in addition to others, have kept central banks from being able to normalize interest rates.  While the US-Iran conflict appears to be fading to the back, geopolitical uncertainty outside the Middle East and uninspiring growth still remain.  This means that we should expect the status quo of stable disequilibrium to persist.



Last week’s economic data out of Germany shows that the Eurozone’s largest economy continues to struggle to regain its footing.  Given this, the longer term outlook for the euro to move higher by the end of the year remains in place.  Last week’s US jobs report supports the view that the US economy is slowing.  While the European economy is still expected to grow slower than the US economy, the gap should shrink and support the undervalued euro.    


The Brexit Withdrawal bill finally passed the Commons and will move to the Lords on Monday.  Passage through the Lords is likely just a formality, leaving the main theme in 2020 to be the evolution of the free trade talks with the EU.  The GBP has traded in the 1.30-1.33 range on the interbank markets and there doesn’t appear to be any catalysts to suggest this range gets broken.


USDJPY finished the year higher as US-Iran tensions pulled back and the US and China are set to sign their Phase 1 trade deal this week.  With the Fed looking comfortable with where rates are and the BoJ on the sidelines as it monitors the impact of fiscal stimulus, except USDJPY to continue to trade in its recent range. 


Since November 2019, the CAD has strengthened sharply.  While last week’s jobs report beat estimates, there likely was some payback from last month’s poor report.  Given this, the overall economic data picture has deteriorated and the recent run of Canadian strength appears overdone.   Should the BoC make a dovish pivot, USDCAD could be vulnerable to a sharp spike given current market rate cut pricing, making incoming data such as Monday’s BoC Business Outlook Survey important.


The CNY has continued to strengthen on the back of additional Chinese stimulus and an easing of US-China trade tensions.  The Phase 1 deal between the US and China is expected to be signed this week.  With details still vague, it remains to be seen how ceremonial or substantial the deal actually is.  While the most important trade issues between the US and China remain unresolved, the belief is that the US will not escalate tensions again ahead of the 2020 election.  Expect stability for the CNY.


The AUD ticked up sharply at the end of last week on the back of a blockbuster retail sales report.  However, timing considerations and one off factors suggest there could be a sharp reversal for the next retail sales print.  Overall the Australian economy remains soft with work left to do on the RBA’s inflation and employment targets.  Additionally ,  the bushfire crisis adds additional economic headwinds.  The RBA reconvenes in February to reassess the economy and the belief is that cuts could come sooner rather than later.  Until then the bias is to be short AUD.        


1/16 South Korea Expectations for rates to be unchanged at 1.25%


United States and Canada

1/14 US CPI MoM Expectations for a 0.2% increase
1/15 US PPI MoM Expectations for a 0.2% increase
1/15 US Retail Sales MoM Expectations for a 0.3% increase


1/15 EZ Industrial Production Expectations for a 0.3% increase
1/17 EZ CPI MoM Expectations for a 0.3% increase
1/13 UK Industrial Production MoM Expectations for 0.0% print
1/15 UK CPI and PPI MoM Expectations for a 0.2% and 0.1% increase, respectively
1/17 UK Retail Sales MoM Expectations for a 0.6% increase
1/15 German GDP YoY Expectations for a 0.6% increase

Asia/Japan, and New Zealand 

1/13 Chinese Trade Balance Expectations for a $45.7 billion print
1/16 Chinese Industrial Production YoY Expectations for a 5.9% increase
1/13 Japanese Current Account Balance Expectations for a 1,786 billion yen print
1/15 Japanese PPI YoY Expectations for a 0.9% increase
If we can help you with any Foreign Exchange needs, please email or call (800) 447‑4133.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Facebook Twitter LinkedIn Google Plus YouTube
Non-deposit investment products:
Are not FDIC insured,
Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and
Are subject to investment risks, including possible loss of the principal invested.
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. City National 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.
Unsubscribe from this list  |  Update email preferences
This message has been sent to Please do not reply to this email. To ensure the delivery of future emails, please add to your email address book or safe sender list.
Copyright ©2020 City National Bank – All Rights Reserved.
350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071
City National Bank is a subsidiary of Royal Bank of Canada.
Equal Housing Lender
NMLSR ID# 536994 | City National Bank Member FDIC


Popular posts from this blog

Acquisitions or Alliances: What's Your Growth Strategy?