The Week Ahead: Onto the Next

Foreign Exchange: The Week Ahead
Onto the Next
Share this story:
Facebook
Twitter
LinkedIn
Email
Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
With the European Parliamentary elections in the rearview mirror, Europe now has to decide how the top jobs at various EU institutions should be divided up.  Of particular interest to the markets will be the next ECB president.

Mario Draghi, the current president, has occupied the role for the past 8 years and will step down at the end of October.  During his tenor, Mario Draghi oversaw a central bank that took extraordinary measures, including never before used actions, in an effort to stimulate the European economy. 

Policy wise, all of the candidates agree with maintaining negative rates and QE as policy tools.  Should European growth remain weak, there is a possibility that the commitment not to raise interest rates could extend well beyond Draghi’s term. 

While there is a long list of candidates, in reality, the choice comes down to the candidates supported by France and the candidates supported by Germany.  Generally speaking, the German-backed candidates are seen as more hawkish than the French-backed ones.  Ultimately, the decision on the ECB role will come down to what happens to the European Commission President role.  Under the current process, the leader of the largest bloc in the European Parliament (likely Germany’s Weber) should be the European Commission President and block the German-backed candidate from the ECB role.    

Whoever ends up as Draghi’s successor will be tasked with policy normalization.  However, this task is made difficult by a global landscape characterized by geopolitical tensions, weak economic performance and stubbornly low inflation.  Premature tightening, such as in 2011, would lead to negative economic consequences at a time when the ECB has one of the most limited monetary policy toolboxes in the world.  

MAJOR CENTRAL BANK ACTIVITY THIS WEEK

5/29 Canada Expectations for rates to remain unchanged at 1.75%

KEY MARKET MOVING ECONOMIC RELEASES

United States and Canada

5/30 US Q1 GDP Annualized Expectations for a 3.1% gain
5/30 US Initial Jobless Claims Expectations for 215k claims
5/31 Canadian Q1 GDP MoM Expectations for a 0.3% gain

Europe/Eurozone

5/28 EU Consumer Confidence Expectations for a -6.5 print
5/27 German Consumer Confidence Expectations for a 10.4 print
5/31 German CPI MoM Expectations for 0.3% gain
5/30 UK Consumer Confidence Expectations for a -12 print

Asia/Japan, and New Zealand

5/30 Japanese Jobless Rate Expectations for a 2.4% print
5/30 Japanese Industrial Production MoM Expectations for a 0.2% gain
5/30 Chinese Manufacturing PMI Expectations for a 49.9 print

FORECASTS

EUR

The euro had a bit of a reprieve this past week as disappointing US data weakened the USD.  Ultimately, the economic picture in the EZ remains challenged as last week’s disappointing PMI data shows. The prospect of protracted trade disputes should continue to weigh on global trade, an area that the EU has high exposure to.  Expect the euro to remain pressured. 

GBP

With PM May’s resignation official, markets are now looking towards her successor.  While it remains to be seen who will take over for May, the expectations are for a more pro-Brexit leader.  As such, the GBP has sold off on this prospect.  Results from the EU parliamentary elections should inform the future direction for Brexit as it serves as a proxy for public sentiment.  Expect the GBP to remain under pressure, but uncertainty remains high, and be headline driven as a second referendum/new elections may be the only way to break the deadlock.  

JPY

Risk-off flows into the safe haven yen have made the JPY the G10’s top performing currency since the beginning of the month.  With both the US and China increasingly entrenched in their respective positions, expect resilient safe haven demand.  Domestically, President Trump visits Japan this week to discuss trade, raising headline risks.  Recent rhetoric from the US on undervalued currencies makes it likely that the yen will be discussed and could bias it stronger. 

CAD

Falling oil prices, due to global growth demand, helped to weaken the CAD last week. This week, the key events will be the BoC meeting and GDP data with the BoC expected to maintain rates.  Expect the CAD to continue to be influenced by overall market risk sentiment.  Bias for range bound to weaker trading. 

CNY

Market indications are increasingly pointing to an extended period of trade tensions between the US and China with nationalist rhetoric increasing.  As such, the CNY has been one of Asia’s worst performing currencies on the month as China is seen as being hurt more than the US during a trade war.  Dollar strength and further easing from China should further weaken the currency.  Reports have circulated that China isn’t keen to see USDCNY weaken beyond 7, and there appears evidence of support over the past couple of sessions.  However, it remains to be seen how strong this defense will be if Chinese market measures remain stable. 

AUD

Trade tensions and monetary policy concerns have pushed the AUD lower.  The RBA has indicated that the labor market would be a key factor in its future rate path.  To this end, the most recent employment report showed an increase in the unemployment rate which has fueled speculation that rate cuts could be moved up.  Continued downward pressure is expected, however market positioning could limit the move.
If we can help you with any Foreign Exchange needs, please email foreignexchange@cnb.com 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 bank@banking.offers.report. Please do not reply to this email. To ensure the delivery of future emails, please add foreignexchange@emails.cnb.com to your email address book or safe sender list.
Copyright ©2019 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.
TERMS & CONDITIONS  |  PRIVACY STATEMENT
Equal Housing Lender
NMLSR ID# 536994 | City National Bank Member FDIC
                                                           

Comments

Popular posts from this blog

Fidelity: Bollinger band stock signal

Viewpoints: What to do after a data breach