FX Weekly Wrap: “No deal is still better than a bad deal”

GBP
Traders were highly anticipating UK Prime Minister May’s Brexit blueprint speech this week; May once again stated that ‘no deal is still better than a bad deal’, and further, the UK will leave the single market and customs union, while an EEA/Canadian-style membership would not suit the UK. May went on to state that the UK will cease to be a member of the EU in 2019 (when two-year Article 50 period concludes). However May did confirm that there would be a transitional period, which should hopes will be ‘around two years’.

The Prime Minister’s lack of new answers and negotiation updates disappointed markets, as many anticipated some clarity in the UK’s plans going forward. The indecision and lack of detail was clear in sterling trade, with initial weakness being retraced, as investors were given no clear information on developments.

GBP/USD fell back towards yesterday’s levels; however, support was event around 1.35. EUR/GBP traded in a similar fashion as the PM spoke, consolidating firmly within the day’s and week’s range. 

USD
A hawkish skew from the Fed spurred some Greenback buying on Thursday, as more FOMC participants view the December meeting as live for a hike. FFR futures are now pricing over 70% implied probability of a hike to 1.25% - 1.50%.

Despite initial USD buying, unwinds were clear later in the week, led by EUR, which looked back toward 1.20 as stronger Eurozone PMI were reported.  

EUR
European investors will monitor the German election results on the weekend, yet markets are considering this to largely be a non-event, as Chancellor Merkel is widely expected to retain her post. EUR found some strength in the morning after a decent set of PMIs, which rose despite expectations for a modest fall.  

JPY
North Korean rhetoric spurred some safe-haven flows late in the week, as yen took some extra impetus from a Friday unwind. Touted resistance around the 112.70 area has been evident, with traders taking profits as the pair headed toward 112.70, with many concerned about holding weekend positions following further threats of hydrogen bomb tests from the rebel state.

CAD
USD/CAD saw some weakness as investors awaiting UK PM May as well as the general DXY weakness. Data showed inflation data missing expectations, with the headline Canadian CPI Inflation YY for August coming in at 1.4% vs. Exp. 1.5% (Prev. 1.2%), resulting in some Canadian dollar weakness. The Average measure, however, which the BoC keeps an eye on, came in slightly ahead of expectations, keeping a hawkish BoC narrative in place.

CAD has seen little direction through the week, as 1.24 saw offers stacked earlier in the week, yet still firmly above the 1.21 area lows.

NZD & AUD
NZD will very much be in focus this weekend; with the New Zealand election results expected on Saturday. Polls have recently implied a lead for the ‘market friendly’ National Party. In terms of market reactions, a win for the National Party is seen as the NZD-positive outcome as it would maintain the status quo under the proven track record of PM English, who served as Deputy PM and Finance Minister for 8 years prior to taking the top job in December last year.

Conversely, a Labour win would be expected to pressure the currency given the uncertainty of a new and untested government, while a change in government would also likely impact the RBNZ as the current opposition have called for full employment to be included in the central bank's mandate and have proposed for a committee to decide on RBNZ policy instead of leaving it at the sole discretion of the RBNZ Governor.

AUD traders will also have an eye on the election, with the currency already hampered this week by a S&P downgrade of China on Thursday, potentially affecting their close trade partner. Further pressure was seen in AUD as comments from Lowe noted clear risks in the Australian economy. Weaker iron ore prices also played a role.

A shock NZ election outcome is likely to see NZD/USD trade below May’s 0.6820 lows; yet, an expected victory could result in some marginal Kiwi buying, analysts say.

SEK
SEK saw some volatility from the Riskbank’s Minutes, as several board members highlighted the issue of overheating in the Swedish Economy yet noted that there are currently no clear signs of this. This led to investors pricing that some tightening could be on the mind of the bank.

The SEK still saw a bid as a result, yet the move was quickly retraced, as EUR bulls do remain in the market and the concerns of a heating economy were seemingly not an immediate concern.  EUR/SEK saw a marginal fall, yet still finding some support, as EUR bulls continue to play in the market.

NOK
EUR/NOK saw a much firmer move following Norway’s interest rate decision, with increases to the medium-term key policy rate resulting in EUR/NOK falling around 60pips. EUR/NOK continued to lose ground through the week, seeing a full week of down days, consolidating around 9.30.

** please do see the research suite of the RANsquawk website for full previews on up-coming German and New Zealand Elections **

22 Sep 2017 - 16:05- Fixed IncomeData- Source: RANsquawk

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