Morning Report: 17 September 2018

17th September 2018

GBP. Sterling has been in a period of flux following positive Brexit comments from Brussels. However, with no materially new developments, it has failed to find a new leg higher and remains significantly undervalued on a trade-weighted basis. That may well change this week, as a plethora of data is released for the UK economy, and there also is a two-day summit of EU-27 leaders in Austria, where Brexit is likely to be the hot topic. The meeting itself may have no official conclusions, but with 5-weeks left of the timeline previously given, anything the markets sense to represent concrete progress is likely to cause significant moves in the pound. The Financial Times has reported this morning that the EU’s Chief Negotiator, Michel Barnier, is looking to replace EU inspectors with U.K. officials at the Irish border in an attempt to move stalling negotiations along. UK Consumer and Producer Price Indices will be released on Wednesday with Retail Sales released on Thursday. This weekend, the annual Labour Party conference begins in Liverpool and may cause the beginning of next week to prove choppy for sterling as Labour officials have previously voiced plans to vote against Theresa May’s Brexit deal.

EUR. The common currency failed to secure gains against the dollar for the fifth day in a row on Friday, as the euro weakened against most major currencies. The most important data release on Friday underwhelmed, with the Trade Balance coming in at a surplus of 12.8B in July. Both imports and exports rose compared to July 2017 though, hinting that so far trade concerns haven’t slowed the trade integration with the Eurozone and the rest of the world. European Central Bank President Mario Draghi speaks this week on Tuesday and Wednesday, with Final August CPI figures on Monday and Flash Purchasing Manager Indices due to be delivered on Friday.

USD. The greenback stomached losses from Monday to Thursday last week, but veered up again on Friday, as it almost topped the G10 currency board and compensated for inroads suffered earlier. Retail Sales confused traders for a moment on Friday with August reading’s short of expectations at a headline growth of a mere 0.1%, but as July’s prints were adjusted upwards this eventually didn’t stall the rally USD that started around noon. Trade will be front, left and centre for the dollar this week as President Trump appears to push through on his $200 billion worth of tariffs on Chinese goods, while at the same time efforts are being made to restart trade talks again this week by members of his administration. Data may prove to be an afterthought amidst the volatility trade developments can cause, with Flash PMIs on Friday the most impactful data release expected this week.

CAD. USDCAD recently broke above its prior downtrend channel, but positive comments from Washington regarding the progression of a new NAFTA deal same the loonie surge and USDCAD slip back into said downtrend. The data calendar seems bottom loaded for the loonie with no top-tier releases until Friday where August’s Consumer Price Index will be released alongside July’s Retail Sales at 13:30 BST. All eyes throughout the week will, therefore, rest on developments coming from Washington as the deadline for a trade deal rapidly approaches.