Morning Report: 21 September 2018

21st September 2018

GBP. Sterling catapulted yesterday off the back of a second consecutive positive surprise in UK data. Retail Sales were released at 09:30 yesterday, and with the median forecast on Bloomberg expecting a 0.2% moderation from last month’s staggering figure, Retail Sales for August surprised to the upside and posted 0.3% MoM growth despite last month’s figure being revised upwards. This set sterling off against a weakening dollar. Negative Brexit statements from EU officials in Salzburg yesterday did little to topple sterling’s celebration cake, but instead, it took the cherry from the top.

EUR. Euro had a cracker of a day yesterday, mercilessly slaying technical level after technical level on EURUSD, without a clear driver for this rally being easily identified. However, improved risk sentiment does offer itself as a likely candidate. This because currencies that previously profited from a risk-off move, like USD and JPY, weakened while emerging market currencies fared well and the S&P 500 equity index even put a fresh all-time high on the boards. This morning Eurozone Flash Service and Manufacturing Purchasing Manager Indices for September will be published at 9:00 BST. The possible widening in growth trends between Germany and France, which have a solid trend, and Italy and Spain, which saw signs of a moderate slowdown in growth in the August edition, will be under extra scrutiny.

USD. A reverse in risk sentiment seemed to drive the DXY dollar index to its lowest point since mid-June yesterday, with the greenback only narrowly being able to stay ahead of the Japanese yen on the currency board. A cause for this can be the improved perspectives on trade after Chinese sources revealed China is considering to cut tariffs for its main trading partners possibly as soon as within two months. This gesture comes on top of remarks by Premier Li on Wednesday that China will not devalue its currency as a weapon in a trade war, hinting that China is actively trying to defuse the trade tensions with the US. If this strategy proves to be successful, dollar weakness may be on the cards, as the dollar bull run over the summer coincided a rise in worries over global trade, and these fears may fortunately not pan out completely after all.

CAD. The loonie had a choppy afternoon yesterday after Donald Trump tweeted about OPEC’s high prices. As oil prices fluctuated, so did the loonie, but eventually, the dust settled and the Canadian dollar made ground against its US counterpart. Realistically, NAFTA talks have probably missed the deadline to sneak a deal through Congress, leaving all eyes on the White House and whether the Trump administration pushes on with a unilateral trade deal with Mexico. This afternoon, at 13:30 BST, Retail Sales and the Consumer Price Index for August are released. This may extend the loonie’s morning rally further.