News & analysis


The loonie was the best performing G10 currency yesterday against a broadly firm US dollar as rising tensions in Libya and Iraq cast doubts over the current supply of oil. This morning, however, USDCAD has reversed all of yesterday’s move lower and then some with oil trading nearly a percentage point lower. The RIA news agency cited comments from OPEC’s Secretary-General Barkindo yesterday who said the March meeting will go ahead. This goes against the markets preconception that the status quo in output cuts will be maintained until a meeting is held in H2 2020. Today the data calendar kicks off for the loonie with November’s manufacturing sales released at 13:30 GMT. The figure is expected to show a 0.5% contraction but may be marred by transitory factors; the CN rail strike in November was Canada’s longest railway strike in a decade and disrupted the flow of resources and manufactured goods.


US markets were shut yesterday for Martin Luther King Jr day. The dollar spent much of the day in the green but ultimately ended up marginally lower upon closing. President Trump’s impeachment proceedings begin today under a rushed timetable outlined by US Senate Republican leader Mitch McConnell in his four-page resolution late last night. The rules will be debated and voted on when senators meet today, but with the Republican party holding a large majority in the Senate, it is hard to see McConnell’s proposal not passing. Under McConnell’s plan, opening arguments from the House prosecutors would be limited to 24 hours over the course of two days, with senators allowed 16 hours for questions to both prosecution and defence, only afterwards can there be a vote for calling other witnesses. McConnell’s proposal has been deemed a national disgrace by Senate Democrat leader, Chuck Schumer, as the republican party aims to rush through the trial in order to obtain an acquittal for the president. President Trump is due at the World Economic Forum in Davos today and is expected to deliver remarks this morning before meeting business leaders and foreign officials, including the Iraqi and Swiss presidents.


The single currency sat broadly on the back foot during yesterday’s session but managed to claw back losses to close flat on the day. This morning, however, much of the pessimism around the euro continues with EURUSD trading marginally lower ahead of the German ZEW release for January which is due at 10:00 GMT. The current situation sub-index has recently shown signs of bottoming out after contracting for the most part of the last two years. Economists’ expectations suggest sentiment over the current business climate in the eurozone’s largest economy will continue to improve from -19.9 to -13.5 in January. This sits broadly in line with the improving expectations index which has sat in positive territory since November. Overnight, news broke that tensions between France and the US have cooled with both President Macron and Trump agreeing a truce on the digital tax dispute and the punitive retaliatory tariffs.


It has been very much of the same for sterling thus far this week with the pound trading in a tight range ahead of further data releases. Fixed income markets are still pricing a 67% probability of a rate cut by the Bank of England at the end of the month, but pricing is subject to change quite rapidly. This morning’s labour market report at 09:30 may help consolidate prior pricing, especially if wage growth measures begin to cool substantially. If this were to occur in November, it may partially explain why the adjusted retail sales figures for December, which were released last week, were so dismal. In Brexit discussions, EU officials want to include possible fines for violations for any rules broken as deemed by an arbitration panel. Later today, Bank of England governor Mark Carney will speak at the World Economic Forum in Davos on “solving the growth equation.”



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