Weekly FX Outlook November 29th
GB Pound
The Dollar was strong versus GBP.
Movements
EURUSD opened at 1.1276 and initially continued to trade lower, hitting a new 16-month low at 1.1188 on Wednesday. It then strongly recovered on Friday to briefly touch 1.1330 before finally closing broadly unchanged at 1.1268 (-0.07%).
GBPUSD opened at 1.3425 and traded with a negative bias most of the week, reaching a new low for the year (1.3280) on Friday. It closed the week at 1.3327 with a loss of 0.73%.
Movement rationale
The Dollar remains firm.
USD has been strong in recent weeks, driven by expectations of an interest rate rise, while on risk-off days it performs well as the main safe-haven. Last week, this strength was maintained with the exception of a Friday-blip when EUR rebounded for a few hours, probably due to short covering amid fears that Omicron could delay an interest rate rise. Should Omicron prove to be a minor problem (a South African doctor at the heart of the outbreak describes Omicron symptoms as mild), USD should recover its strengthening trend.
Week ahead
The main event on the US economic calendar this week will be Friday’s job report.
Calendar
Wednesday 1:15pm | ADP Employment Change (Nov), ISM Manufacturing PMI (Nov)
Friday 1:30pm | Nonfarm Payrolls (Nov), ISM Services PMI (Nov)
US Dollar
The Dollar reached a 16-month high versus the Euro on strong Retail sales.
Movements
EURUSD maintained the bearish outlook, having opened at 1.1448 and progressively losing ground, touching a new 16-month low on Friday (1.1250). It closed with another heavy loss of 1.5% at 1.1276.
GBPUSD opened at 1.3414 and traded with a positive bias most of the week, reaching 1.35 on Thursday before erasing all gains on Friday. It finally ended the week broadly where it started.
Movement rationale
The Dollar remained in demand, being supported by expectations that the Federal Reserve will raise rates as earlier as beginning of next year due to the sharp increase in inflation. Strong retail sales further boosted the Greenback, with the data released on Tuesday recording the largest gain since March this year. To add additional support to the US currency, two Federal Reserve officials made some bullish comments on Friday, suggesting that a faster pace of stimulus tapering may be appropriate amid a strong economic recovery and a rising inflation, pushing the Dollar Index to the highest level since July 2020.
Week ahead
The main event on the US economic calendar this week will be Wednesday’s minutes on the last Federal Reserve meeting.
Calendar
Tuesday 2:45pm | Markit PMI Composite (Nov)
Wednesday 1:30pm | Durable Goods Orders (Oct), Gross Domestic Product (Q3), 7pm | FOMC Minutes
Euro
Euro had a surprisingly good week.
Movements
EURUSD opened at 1.1276 and initially continued to trade lower, hitting a new 16-month low at 1.1188 on Wednesday. It then strongly recovered on Friday to briefly touch 1.1330 before finally closing broadly unchanged at 1.1268 (-0.07%).
GBPEUR opened at 1.1905 and at first traded in a narrow range (1.1860-1.1925) before moving lower during the second part of the week to close with a loss of 0.68% at 1.1824.
Movement rationale
Euro had a volatile week versus USD. Having struggled for most of the week, it recovered strongly on Friday as investors took the view that a USD interest rate rise was less likely due to Omicron. On Friday EUR moved dramatically from 1.1200 to 1.1330, suggestive of some short-covering. This EUR strength was despite a generally bearish EUR theme - the Fed and BOE look likely to increases interest rates before the ECB, while Europe’s faltering economy and COVID problems are also headwinds for EUR.
Week ahead
The Eurozone economic calendar includes the following:
Calendar
Monday 10am | Business Climate (Nov)
Tuesday 10am | Consumer Price Index ((Nov)
Friday 10am | Retail Sales (Oct)
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