Morning Commentary: Hope Springs Eternal

Foreign Exchange - Morning Commentary
Hope Springs Eternal
Share this story:
Facebook
Twitter
LinkedIn
Email
Alan Rose
Alan Rose
Foreign Exchange Senior Trader
One of the constant themes in the marketplace over the past four months has been the optimism, confidence and momentum exhibited in U.S. and global equities.  Three Fed rate cuts combined with a reduction in U.S.-China trade friction and the likelihood of an orderly Brexit have spurred investors onto a more positive outlook going forward. The reduction of tensions regarding trade is helping to improve the outlook for global growth as we head toward 2020.

Up until recently, the currency market did not generally reflect this renewed positive outlook as many key currencies remained sidelined by the strong and steady performance of the U.S. economy relative to its peer group. But markets are always looking forward and with the reduction of trade and geopolitical tensions, markets are beginning to anticipate more green shoots springing up. As we approach year end, it appears there is a bit of front running in anticipation of better growth in the Eurozone, Asia, and in emerging markets.

While markets remain thin as many investors and traders remain on holiday, the U.S. dollar has weakened sharply overnight against many of the key major and emerging market currencies. European currencies are particularly sensitive to global growth changes and the optimism that has helped propel global equities seems to be aiding these currencies in particular as they have been slowly advancing since September and in particular today.

The euro is the second most important currency to the U.S. dollar and is highly sensitive to trade volumes as many key countries have much larger shares of GDP concentrated in exporting. In 2017, as U.S. and world growth accelerated, the euro advanced by nearly 15%. In 2018, as the trade war with China took hold and global trade volumes were negatively impacted, the euro fell by 4.5%. 2019 brought more downgrades to European growth and the euro fell by 3% this year.

Heading into 2020, many economists have upgraded their GDP forecasts for Europe and the euro forecasts have reflected this optimism with predictions of gains near 4% in 2020. Assuming all goes according to plan (no new White House surprises on trade), we tend to agree with those forecasts and look for a slight weakening in the U.S. dollar in 2020.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • The Japanese yen (JPY) has not been participating in the mild U.S. dollar weakness over the past few months nor in today’s sharp fall. Part of the explanation is an unwinding of the JPY’s safe haven status against many key currencies and continued weak Japanese economic data. Industrial production fell again in November by 0.9% after collapsing in October by 4.5% and are fast approaching levels not seen since 2013. Japanese exports fell by 8.2% in early December after falling by nearly 18.5% in the same period in November.
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

Acquisitions or Alliances: What's Your Growth Strategy?