Monthly Forecast: January 2019

Foreign Exchange - Monthly Forecast
January 2019
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Analyst
The DXY (USD index) once again remained broadly range bound this past month as it moved between strength and weakness and ultimately remained broadly unchanged. Many of the same risks remain, with some trade conflicts in a "ceasefire" mode but materially unresolved. Additionally, political risks have moved to the forefront with senior White House officials resigning, Fed Chair Powell under pressure, the government shutdown continuing and the Mueller investigation looming. Read more...
Similar to the USD, the euro traded broadly flat over the past month with price action choppy but the currency ultimately remained range bound. While we remain constructive on the euro in 2019, we expect the euro to remain pressured in the near term. Macro-economic divergence with the US should continue with US economic measures remaining strong and European economic data continuing to be soft. Read more...
As noted in prior commentaries, we expected the GBP to be primarily moved by Brexit headlines and that was certainly the case this past month. Two months ago the GBP moved higher on the back of positive Brexit headlines however we noted that it was difficult to feel confident in the move as a Withdrawal Agreement was just the first step in a long and contentious process and this is exactly what played out. Read more...
Over the past month, the JPY has been the top performer in the G10 space as US 10-year yields have dropped to their lowest level since the middle of 2018. Read more...
Over the past quarter, the USDCAD broke out to the upside as crude prices fell nearly 45% from its October high. Over this time-frame, the CAD weakened ~6%, making it the second worst performer in the G10 only behind the Norwegian Krone, which is another currency exposed to oil. Read more...
The AUD spent 2018 in a downward trend and finished the year as one of the worst performers in the G10. This under performance was driven by divergence between the RBA and Fed, as well as slowing Chinese growth and trade concerns as the Australian economy is export heavy with close ties to the Chinese economy. It should be noted that the markets used short AUD positions as a hedge for trade war fears. Read more...
After a period of sharp depreciating pressure on the CNY starting in April, the currency has stabilized over the past couple of months. 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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