Collinson FX Market Commentary - Dec 7

Collinson FX Market Commentary - Dec 7 - EU mired in stagnation

by Collinson FX on 7 Dec 2016

Start of PIC Coastal Classic - October 21, 2016 - Richard Gladwell www.photosport.co.nz

Collinson FX Market Commentary - Dec 7 - EU mired in stagnation

Dec 7 - Markets were steady overnight with a focus away from geo-political issues and back on Cental Bank activity. The RBA left rates unchanged, allowing the Fed to act on their behalf (when they raise rates next week), closing interest rate differentials and exerting downward pressure on the AUD.

Markets also keenly await the ECB, which will make their determinant tomorrow, with expectations of further QE. They are in a completely different cycle than the Fed, with many geo-political and economic threats in the EU, combined with serious challenges to European banks. The EUR slipped back to 1.0715, with the GBP drifted back to 1.2670, with rising US bond yields invigorating the Dollar.

The AUD may come under pressure from expected weak GDP data today, but sets out around 0.7450, while the NZD attempts to hold 0.7100. The threats impacting the global economy are coming from Europe and Central Bank activity is being driven by economic fundamentals. The Fed is in a completely different cycle, with economic demand and growth, while the EU remains mired in stagnation and disruption.

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Collinson FX Market Commentary - Dec 6 - NZD recovers post Key

The prospect of political turmoil in Europe has been roundly rejected by markets. The failure of the Italian referendum forced the resignation of the Italian PM, but this was no major surprise, post-Breixit and Trump!

The EUR initially lost a big-figure, falling to 1.0550, but recovered to rally strongly to 1.0780! US equity markets shrugged off the potentially destructive political news and rallied. US Service and Non manufacturing data was flat, following expected weakness in the corresponding European numbers, allowing calm trade in markets.

The NZ PM, John Key, caught markets on the hop with a surprise resignation. It is a political rarity when a leader gives up power voluntarily, without scandal or electoral rejection and he is to be commended.

The NZD lost ground on the news, but also recovered overnight, to trade 0.7150. The AUD had slipped with the rising safety-play of the reserve, but found ground, heading back towards 0.7500! watch out for the RBA decision, with no action expected, although associated commentary may impact the currency!

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