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EUR rises on strong German data; USD lower

By Nick Parsons

After all the turkey and cranberry sauce yesterday, it’s time to get on with the serious business of shopping. ‘Black Friday’ is the day when it used to be said storekeepers finally moved out of the red to make some profits before year-end. Foreign exchange traders have been profiting recently by selling US Dollars though it had a steadier session yesterday. The USD rose against the GBP and CAD, fell against the EUR and AUD and was unchanged against the NZD. With significant index weights also for the Mexican Peso and Japanese Yen, the overall impact of Thursday’s bilateral moves was to push the USD Index down another tenth of a point to 92.81. This is the lowest since October 13th. The overnight session in Asia has been pretty quiet though as the EUR moved higher in the London morning, the index printed at a low of 92.76. A quick look at the charts shows the way is still clear for a test of the September 7th low at 91.0. The index is below its 20,50,100 and 200-day moving averages and the only noticeable area of technical support is the October 11th low at 92.58. News reports today will doubtless be dominated by the success, or otherwise, of retail promotions and what they might mean for financial markets. A quick Google search this morning brought up 283 million results for ‘Black Friday’ so it’s going to be pretty difficult to ignore…

All good things come to an end and so has the Canadian Dollar’s recent strong run. South of the border, folks were celebrating Thanksgiving yesterday but north of the 49th parallel, markets were very much open for business. With the focus on the success – or otherwise – of Black Friday, Statistics Canada brought us the latest snapshot of retail sales during the month of September. Disappointingly these rose just 0.1%, versus forecasts for a 1.0% m/m gain, after dropping 0.1 percent in August. Receipts for the country’s retailers have been flat over the past four months, after one of the best starts to a year for the industry on record. This was the last major piece of output data ahead of third quarter GDP numbers next week, and is the second release this week that showed unexpected weakness in activity. Statistics Canada reported Tuesday that wholesale sales fell 1.2 percent in September. Economists are estimating annualized GDP growth of 1.8% in Q3, down from 4.5% in the Q2. Though the CAD fell on the news, it can hardly be described as a collapse: USD/CAD is at 1.2720 in North America this morning, having touched a high of 1.2745. AUD/CAD briefly touched 97 cents but starts the session around 0.9690.

It has been a common theme of the last couple of weeks but, yet again, the EUR opens higher after a very good set of economic data. This time it was Germany’s ifo Survey; a highly regarded indicator of activity across the whole economy. The Business Climate Index rose to a new record high of 117.5 in November from 116.8 in October (around 90% of responses were submitted before the end of the "Jamaica" coalition talks on Sunday). This was due to far more optimistic business expectations. Companies’ assessments of the current business situation were no longer quite as positive as last month. The latest figures indicate economic growth of 0.7 percent in the fourth quarter, pointing to growth of 2.3 percent for 2017 as a whole. In manufacturing the index also hit a new record high thanks to far more optimistic expectations. Manufacturers slightly scaled back assessments of their current business situation, which nevertheless remain at a high level. A growing number of manufacturers plan to increase prices. In unusually exuberant language, the ifo Press release said, “The German economy is on track for a boom.” EUR/USD has extended its gains to reach a high of 1.1865; its strongest level since the day of the ECB Council Meeting back on October 26th. EUR/CAD was on a 1.50 handle for the whole day on Thursday but has moved up to a best level of 1.5125 before opening today in North America around 1.5090.

The pound has rallied after a mini-wobble overnight which took it down to USD1.3286 and CAD1.6905. Prime Minister Theresa May is in Brussels today where an EU Summit is being held. She is scheduled to meet the president of the European council, Donald Tusk, at the end of the meeting. She told reporters: “These negotiations are continuing but what I am clear about is that we must step forward together. This is for both the UK and the European Union to move on to the next stage.” Stripping down a very complex issue here, the PM offered after a speech in Florence in May to pay a so-called “divorce bill” upon Brexit. A UK cabinet meeting on Monday agreed to increase the final settlement but only on condition that the EU guaranteed progress on to a second phase of talks at a European council meeting on December 14 and 15. The EU is in no mood to be rushed; feeling that it can extract a greater sum of money and a better deal for EU citizens’ rights. The EU insists on no border between the Republic of Ireland and Northern Ireland. But if it wins this, there will have to be a border between Northern Ireland and the UK, something which the Prime Minister’s Coalition partners refuse to accept. For the GBP today, it’s probably a binary outcome. If the Prime Minister comes away with nothing then the pound falls, but an agreement might see it extend this morning’s rally. It opens in North America at GBP/USD 1.3315 and CAD1.6945.

The Australian Dollar has spent the entire week against the US Dollar in a trading range of almost exactly 100 pips from a low early Tuesday morning around 0.7533 to a high in London Thursday of 0.7633. Overnight it printed just below 0.7610 and opens in North America today around 0.7615. Against the Canadian Dollar, it has been a tighter range from 0.9646 to a high of 0.9701 and it opens on Friday within 10 pips of the week’s high. A very quiet Friday in Sydney with 27 degrees of Spring sunshine and an Ashes cricket test match on TV gave locals much better things to do than trade the currency markets. It had been widely reported that Amazon would use the hype around Black Friday to officially launch its entry into Australia but as the clock ticks past midnight there, nothing has been announced. With the Aussie Dollar very sensitive to interest rate differentials with the US and the rest of the world, anything which is seen to push down inflation (and hopes for rate hikes) ought to weigh on the currency too. It will be fascinating to see if Amazon replicates its success in the US where it gets an estimated 43% of all online sales or whether it’s a repeat of the Canadian experience where it doesn’t have the same market penetration. For today, the AUD opens at US0.7615 and CAD0.9690.

The Kiwi Dollar continues to trade as if it has a fixed exchange rate against the AUD; it hasn’t moved more than 30 pips either side of 1.1080 all week and after printing a low of 1.1055 on Thursday, it’s now back exactly to the mid-point of the range. Economic data released overnight showed New Zealand’s trade deficit narrowed in October as dairy and lamb shipments fueled a jump in exports, despite imports hitting a record high. There’s always plenty of fascinating detail in these numbers: exports of milk powder, butter and cheese rose 22% from the same month a year earlier to $1.29bn whilst logs, wood and wood articles jumped 27% to $461m. Overall, according to Statistics New Zealand the trade deficit narrowed to NZ$871 million from NZ$1.156 billion in September. The NZD has been on a US 68 cents handle for almost the entire week and opens in North America this morning at USD0.6875 and CAD0.8750.