It has indeed been a tumultuous week for the currencies of the G10. Firstly you had news out of the UK that Theresa May was sputtering out of Brexit. Then you had the Catalonia independence referendum which sent the Euro into a tailspin. All of this is happening as news out of the US and North Korea spat continues.
We will take a look at the latest movers this week to get an idea of which way currencies will move in the next few days.
Symmetric Risk for GBP USD
According to a note from Barclays capital on the GBP, there are symmetric risks that are inherent. Tis will be an increasingly relevant week for citizenship rights the financial settlements and of course the Irish border.
There could of course be a relief rally in the GBP if there is sufficient progress sin the negotiations. This is on the back of the large scale sell off last week in GBP.
Of course, there is also the other side of the coin. If there is more division and political infighting in the conservative party then we could see more downside risk on the currency. There is no doubt that the EU will take a tough stance with Michel Barnier’s speech that will come on Thursday. It is also worth watching the news that comes out of the closing speeches by Theresa May.
EUR/ USD Still Resilient
Even though there appears to still be worries about the Catalan crisis, the EUR/USD pair appears to still be quite resilient and is holding its ground. EUR bulls are trying to hold their pace at the 1.18 level. This is because there is still a lot of bearish sentiment around the dollar. Investors are waiting in eager anticipation for the minutes from the Fed’s September meeting.
Of course, the geo political risk with North Korea is still in everyone’s mind and is driving the greenback down further. This is on the back of news from North Korea that the US attempted some assassination attempts on the leader of North Korea in May.
Of course, for the Euro, the speech from the leader of Catalonia on Tuesday was really important as this was the main issue that was plaguing the Eurozone over the past few days. If there is clarity from the leader that independence will not be pushed then expect further upside potential.
USD/ CAD is Approaching Session Lows
There was some more selling pressure on the USD/CAD on Tuesday. This now appears to be a 3 day low at near the 1.2520 region. This was mainly weighed down by the negative sentiment on the US dollar that we have mentioned above.
Moreover, there was an increase in the price of curde oil which no doubt had a positive impact on a crude oil exporter such as Canada.
However, the pair has managed to keep levels just above the 1.25 point. This is all in anticipation of what is expected to come from the Canadian Housing data that is to be released soon.
Of course, there is also the ever increasing prospect for more fed hikes that could come in December. This could stem the losses that we are seeing and incentives traders to increase their long positions.
AUD/USD Eyes Further Losses
Although about 53.3% of traders are not long the Aussie dollar, there is scope for a contrarian view from the crowd. Although the reserve Bank of Australia did leave interest rates where they were, there was no indication that they were likely to raise it any time soon.
Added to the comments from the central bank, we also had some bad economic numbers in the form of sliding August retail sales. You also had comments from the RBA board member, Ian Harper who said that further rate cuts cannot be ruled out if the economic conditions continue as they are.
Even though no central banker will ever rule out decreasing rates, all of this economic backdrop as well as perceptions that US monetary policy is getting tighter. Moreover, there is not much in the way of economic news coming to the fore over the next week that could change that.