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Fundamental Analysis 21.03.2018 – Market Outlook

Market Recap

CAD was the best-performing currency on newspaper reports that the US has dropped a demand in the North American Free Trade Agreement (NAFTA) talks that all vehicles made in Canada (and Mexico) for export to the US contain at least 50% US content. Motor vehicles and parts account for some 21% of Canadian exports to the US, not far below energy, which is 25%, so this is a big win for Canada. CAD has been the worst-performing major currency so far this year; if there starts to be some optimism about NAFTA talks, there could be a serious rebound. This should be positive for CAD.


EUR weakness seems to be more the counterpart of USD strength ahead of today’s 21st of March 2018 Federal Open Market Committee (FOMC) meeting rather than the result of any euro-specific news. It may also be just reversion after Monday’s jump on rate hike speculation; 

NZD was lower ahead of tonight’s 21st of March 2018 Reserve Bank of New Zealand (RBNZ) meeting.

FOMC preview

The big event today is of course the FOMC meeting. The market is pricing in a 97.9% likelihood of a rate hike at this meeting.

The big question then will not be the rate decision; the question will be the “dot plot” giving the FOMC members’ estimates of where rates will be at the end of this year and next. Currently, their forecasts assume three rate hikes this year and perhaps two each in 2019 and 2020. The market has discounted three rate hikes this year 2018, but for next year 2019 it sees only one hike and a 50-50 chance of another, with a small chance of a third hike in 2020. 

Other points to watch are their economic forecasts. Given the tax breaks, they may revise their growth forecasts up and their unemployment forecast down. Core inflation could be revised down as a result. One main question here is whether they revise down their forecast for the long-term unemployment rate as well. That might imply that they think unemployment can fall further without pushing up inflation.

Other events

It’s the day of the Bank of England Monetary Policy Committee (MPC) vote and the UK employment data are coming out. The unemployment rate is expected to remain unchanged at its near-bottom level, while new job growth is expected to remain healthy – slightly above trend.

 Average earnings meanwhile are forecast to rise at a somewhat faster annual pace than before.

Changes in jobs is one of the most important number for the FX market. Unlike in the US, average earnings growth seems to have almost no impact on GBP following the announcement. A third consecutive month of strong jobs growth could be positive for GBP.

Britain’s public sector borrowing figure comes out at the same time.  

The forecast figure would result in a slight rise in the 12-month moving average of borrowing. The number is almost exactly what people were forecasting for the 12-month moving average last month February 2018.

The US current account doesn’t seem to have that big an impact on the FX market, even though it should, in theory. That’s probably because most of the relevant information is already announced in the trade figures. Nonetheless, a widening of the current account deficit could cause some USD weakness.

Existing home sales too are a second-tier indicator. However, this month’s figure March 2018, is expected to show rise up a bit, as are new home sales, which come out later in the month. If so, that could be positive for the dollar. 

The Fundamental Analysis are provided by Marshall Gittler, an external service provider of an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.

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