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Analysis and Prediction:

Date of publication: August 21, 2017 | Author: Tim Clayton

Last Week’s Summary

The impact of Low liquidity

Although trading volumes across the currency markets are huge, there are important variations in liquidity across trading sessions and there are big differences on seasonal grounds.

August is the peak holiday season in the US and Europe and this has an important impact in undermining liquidity as trading volumes fall sharply.

In this environment, there tends to be a magnified impact to news events with erratic moves in currency markets. It is also the case that there tends to be increased reactions to data which is only very slightly different from expectations.

These risks have been increased by the greater use of automatic trading systems. There is also the risk that rumours will have a more substantial impact than usual.

This week, there were rumours that the US National Economic Council Director Cohn had resigned which triggered sharp dollar losses while the sacking of White House advisor Bannon triggered a recovery in risk appetite.


The US economic data was generally stronger than expected for the week, although the dollar was only able to gain limited support.

Retail sales rose 0.6% for July, double consensus forecasts, and there was a significant upward revision to June’s data.

There was a strong gain in the New York manufacturing survey and a very firm reading for the Philly Fed index. The data overall increased evidence that the US economy is gaining fresh momentum.

Minutes from July’s Federal Reserve policy meeting registered increased doubts surrounding inflation trends and a need to closely monitor trends which weakened the US currency on fresh doubts whether there would be a further rate increase this year.


Headline UK consumer inflation data was slightly weaker than expected with the annual rate unchanged at 2.6% compared with expectations of a small increase to 2.7%.

The data continued to dampen expectations that the Bank of England would move to raise interest rates.

The labour-market data was stronger than expected with the unemployment rate dropping to a 42-year low of 4.4% from 4.5% while the pace of average earnings growth increased slightly.

The retail sales data was also slightly stronger than expected for July with a 0.3% gain.

The UK government released positioning papers on key aspects of Brexit, although underlying confidence in the process remained weak.

GBP/USD declined to test support below 1.2850 as EUR/GBP advanced to fresh 10-month highs around 0.9130.


Within the ECB minutes from July, there were reports that members were concerns over the risk of the Euro over-shooting. There were few other incentives amid a lack of data releases with the Euro drifting lower as EUR/USD tested support below 1.1700 before recovering slightly.


There was a generally strong trend in commodity prices during the week and strong demand for precious metals was also a key feature.  Benchmark oil prices advanced to 1-week highs while gold hit the highest level for 9 months before retreating.

The Canadian dollar strengthened with USD/CAD dipping to 2-week lows below 1.2600.

Next Week’s Forecast & Events

Jackson Hole In Focus

Trading volumes will remain low during the European and US holiday season, maintaining the threat of erratic and volatile trading conditions. Overall, conditions surrounding risk appetite is liable to remain fragile, especially with military exercises between the US and South Korea.

The most important event this week is the Jackson Hole Economic Symposium which is liable to be slightly baffling to those who don’t follow market events extremely closely.

The Symposium is a gathering of central bank officials in Jackson Hole, Wyoming which is organised by the Kansas City Federal Reserve.

Central bankers will discuss key economic and monetary policy topics at the event. What makes it important is that major central bank heads make speeches which are often used to signal important changes in interest rates.

The Federal Reserve and ECB bond-buying programmes, for example, were both pre-announced at Jackson Hole.

Markets will, therefore, be on high alert for any important comments from key officials with ECB President Draghi and Federal Reserve President Yellen both due to speak on Friday. Any hints over monetary policy could trigger a substantial market reaction with their wider rhetoric also important for sentiment.


The US economic data releases are unlikely to have a major impact unless there are much stronger than expected releases across all metrics. The new and existing home sales data is due on Wednesday and Thursday respectively as well as durable goods orders on Friday. The US PMI manufacturing and services-sector data will also be released on Wednesday and will be the most important data even if market reaction is limited.

US political developments and White House turmoil will remain important after Friday’s dismissal of policy advisor Steve Bannon.


The UK will release a revision to second-quarter GDP data and markets will monitor any comments by Bank of England Carney at Jackson Hole. The political debate will continue to be an important focus as markets focus on Brexit negotiations with the government due to release further positioning papers.

Markets will need a convincing reason to buy Sterling aggressively and this looks to be unlikely in the week ahead.


ECB Draghi’s speeches will be the main focus for the week ahead, although the latest Euro-zone PMI manufacturing and services-sector releases are due for release on Wednesday.

There is still likely to be strong interest in buying Euro dips given medium-term expectations of a tighter monetary policy.


Canadian retail sales data will be released on Tuesday with trends in oil prices also important for the Canadian dollar.

Scheduled military exercises by US and South Korean forces will keep North Korean fears in focus even if net fears continue to decline slightly.

Currency Forecast for Next Week

Currency pair Spot 1-week forecast 1-month forecast
EUR/USD 1.176 1.170 1.155
USD/JPY 109.3 110.5 112.0
EUR/GBP 0.914 0.915 0.890
GBP/EUR 1.095 1.093 1.124
GBP/USD 1.287 1.279 1.298
AUD/USD 0.792 0.785 0.775
USD/CAD 1.257 1.265 1.280
USD/SGD 1.363 1.365 1.372
USD/HKD 7.824 7.820 7.810
NZD/USD 0.731 0.740 0.725
GBP/JPY 140.7 141.3 145.3
GBP/AUD 1.625 1.629 1.675
GBP/NZD 1.761 1.735 1.790
GBP/SGD 1.755 1.745 1.781
GBP/HKD 10.07 9.99 10.14
GBP/CHF 1.242 1.251 1.298


 timTim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics. 

Information expressed in this article and on as a whole does not constitute as financial advice. If you decide to make any actions based on the information you read, we shall not be held responsible.


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