FX Weekly Wrap – Politics the primary driver

USD

The Dollar ended a roller-coaster week on the up, largely on the Senate’s approval of the 2018 budget resolution (albeit by a slender 51-49 vote), which bodes well for US President Trump’s tax reform proposals. The DXY reclaimed the 93.00 handle and rallied to its best levels in over 1 week above 93.50, despite a run of mixed data, with some additional impetus coming from latest betting on the next Fed chair, as Powell and Taylor emerged as front-runners.

NZD

In stark contrast, it has been a week to forget for the Kiwi, which nose-dived after the NZ First Party elected to back Labour to form a new coalition Government. Nzd/Usd plunged through a succession of supposedly key levels and chart supports to a 0.6965 low, and with little to stop the rot ahead of the next big figure aside from some pre-long holiday weekend short covering perhaps (Monday is Labour Day).

CAD

A frantic end to the week for the Loonie on the back of benign inflation data and dire retail sales, just ahead of next week’s BoC policy meeting. The Cad dropped around 0.8% vs the Usd, with the pair rallying over 100 pips from sub-1.2500 to just over 1.2600. The Central Bank is widely tipped to maintain rates, and Friday’s CPI and consumption reports should only cement the on hold view.

JPY

The Jpy also lost out amidst Friday’s broad Dollar revival and general risk-on trade, with Usd/Jpy eclipsing (just) its post-NFP high to set a marginal new 3 month peak. Heavy offers are noted nearby at 113.50, as the pair heads into Japan’s election that is expected to result in a resounding win for current PM Abe.

EUR

Eur/Usd has been relatively rangebound all week, with Catalonia-Spain a persistent and fluid influence on direction as Madrid looks set to trigger Article 155 following the failure by the regional president to meet an independence deadline. The impasse is likely to remain a dominant theme into next week, before attention switches (for a while at least) to the ECB meeting and QE tapering details. Currently the pair is straddling the 1.1800 level, with big option expiries up to 1.1855 keeping the range intact.

GBP

Last, but not least, and in fact the only major currency to keep its head above water as the week draws to a close. A combination of better than forecast UK public finance data and positive vibes on the Brexit front have helped Sterling maintain pace with the Usd and outperform against the Eur. Cable bounced from sub-1.3100 to just shy of 1.3200 and Eur/Gbp retreated from 0.9000+, as the Pound recovered from several set-backs, like significantly weaker than expected retail sales data and a mixed jobs/earnings update. CPI was in line with consensus and at 3% y/y hit a 5 year-plus high, but comments from various BoE members were dovish overall. November MPC rate hike prospects declined accordingly, to the low-mid 60% level at present and the near term technical outlook remains bearish (offers sighted from 1.3200-1.3230).

20 Oct 2017 - 15:31- Forex- Source: RANsquawk

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