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Merkel, May and Trump to influence the EUR, the GBP and the USD

Bob Mason
Brexit trouble, a possible U.S government shut down, tax reforms and Merkel’s attempts to form a coalition government are all factors outside of the macroeconomic data for the markets to consider through the day. And let’s not forget about the ongoing investigations into the Trump election campaign.

Earlier in the Day:

Macroeconomic data through the Asian session this morning was limited to Australia’s October trade data. Australia’s trade surplus narrowed from a revised A$1.604B to just A$0.105B, which well below a forecasted A$1.410B surplus. The decline was attributed to falling mining exports, with the export of non-rural goods falling by 5%, while the export of rural goods fell by 2%. The decline in non-rural goods exports was attributed to a 10% fall in metal ores and minerals exports, accounting for A$793m of the A$1,074m decline in non-rural goods exports.

According to the ABS, other notable declines in exports were seen in metals (excl. non-monetary gold), which fell by A$146m (16%) and coal, coke and briquettes, which fell by A$121m (3%).

The Aussie Dollar moved from $0.75660 to $0.75431 upon release of the figures, which follow on from the softer than forecasted 3rd quarter GDP numbers released on Wednesday.

Elsewhere, the Kiwi Dollar gave up its Wednesday gains that came off the back of the rise in dairy prices, falling 0.44% to $0.6853 at the time of writing, with the Yen down 0.12% to ¥112.42 against the Dollar, as the equity markets looked to recover some of the week’s losses.

The Day Ahead:

For the day ahead, macroeconomic data out of the Eurozone is limited to Germany’s October industrial production figures together with the Eurozone’s 3rd estimate GDP numbers.

Forecasts are for the figure to be EUR positive, with industrial production expected to recover from September’s slump and the Eurozone’s GDP figures are expected to be in line with 2nd estimates.

The EUR has been on the decline this week, in spite of some relatively upbeat stats, as the Dollar makes up some loss ground off the back of the tax reform bill and upbeat ADP nonfarm payroll figures on Wednesday.

While focus has been largely on the U.S administration, Merkel’s progress on forming a coalition government with the SDPs will need to be considered. While the SDP may have come around to talks on reforming the grand coalition, the German Chancellor may have other issues to address. News hit the wires of the leader of the Christian Social Union Party (“CSU”) Seehofer stepping aside for Markus Soeder to take his place. The issue is that Soeder is not a Merkel fan, with the pair clashing on immigration and in particular, refugee policy. This yet another setback for Merkel who is already on a weaker footing in negotiating with possible coalition partners.

At the time of writing, the EUR was up just 0.02% at $1.1798, with direction through the day data dependent.

For the Pound, key stats out of the UK are limited to November house price figures that are unlikely to have a material impact on the Pound. We’ve seen the Pound fall back to $1.33 levels on Wednesday, with a shift in sentiment towards Brexit reversing last week’s rally to $1.3525.

If there’s any hope for the Pound bulls, British Prime Minister Theresa May and the negotiating team will need to address the issues with North Ireland’s DUP. The EU’s chief negotiator has certainly not helped the British PM’s cause by imposing a Friday deadline for the Irish border issue to be resolved. Failure to come to some sort of an agreement is going to lead to a delay to the next phase of negotiations. Progress will provide strong support for the Pound should there be an agreement in place today, though hopes of meeting the Friday deadline are low for now.

The latest twist in the Brexit path has led to some more infighting within the Conservative Party, a reminder of just how precarious Theresa May’s position is at the top.

At the time of writing, the Pound was down 0.12% at $1.3377, with direction continuing to be dependent upon Brexit chatter.

Across the Pond, economic data out of the U.S is limited to the weekly jobless claims this afternoon. While the figures will provide some direction for the Dollar, the markets will be more focused on tomorrow’s nonfarm payrolls and more importantly wage growth figures.

Economic data out of the U.S has been mixed this week and, while the Dollar has continued to find support on the progress of the tax reform bill, wage growth will need to be relatively upbeat for the markets to consider the possibility of a more aggressive rate path for next year.

With stats on the lighter side today however, focus will also be on Capitol Hill as the government edges ever closer to a shutdown tomorrow, which would certainly hit the Dollar, if the 2013 shutdown is anything to go by. Adding to the downside would be a negative impact on the U.S economy, with the 16-day shutdown back through the first half of October estimated to have cut 4th quarter growth by more than 0.5%. The Republicans and democrats unsurprisingly bridges apart on policy, with immigration at the heart of the debate, Trump seems to be almost pushing for a shutdown come the weekend.

It’s not just the government shutdown that the markets need to be concerned about, with tax reforms and the ongoing investigations into Trump’s election campaign also capable of throwing the markets a curveball.

At the time of writing, the Dollar Spot Index was down 0.03% at 93.583, with Capitol Hill the driver for the day.

For the Loonie, the Bank of Canada’s dovish statement weighed heavily on Wednesday and things could go from bad to worse today. Canada’s November Ivey PMI is scheduled for release this afternoon and any week numbers could tip the Loonie further over the edge.

Following the Wednesday slump in oil prices, it’s been a better start to the day for crude, but with the lack of momentum behind the Loonie, it’s hard to see it bounce back to $1.26 levels against the Dollar any time soon.

At the time of writing, the Dollar – CAD was up 0.13% at $1.2806.

This article was originally posted on FX Empire