Volatility returned to currency markets Thursday following the US Fed’s statement and some “new news” out of Italy has impacted the Euro to the downside in the short term. For the time being the US Dollar has found some buyers after the US Fed raised the official cash rate by 0.25%, and indicated it would raise it again in December, likely every quarter in 2019 and once in 2020.
US 2nd Quarter GDP met the market’s estimates when released overnight, however, Durable Goods data smashed economists estimates coming in at 2.5% far better than the market expected. Couple this together with some unforeseen news out of Italy which has impacted the Euro to the downside in the short term and the US Dollar was the flavour of the day Thursday. Italy is one of Europe’s largest economies and let’s just say its financial situation isn’t exactly rosy. What spooked traders on Thursday was a rumour that the upcoming budget release for Italy would be delayed and the current ruling party would be pushing for an increase in the deficit, which is obviously a negative for the Italian economy and thus in the short term a negative for the Euro. Those of us long on the Euro could not have foreseen this fundamental fact enter the market when taking the long EUR v USD and it is simply part of the randomness of individual trades that we take. Over time, the core pillars of how we trade, Fundamentally, Technically, Risk Management and Replication will hold us in good stead and that is why I harp on risk management on a consistent basis and to ensure your losses are on average smaller than your gains. The Euro fell on a rumour Thursday not a fact and over the medium, to longer term, my anticipation is for the Euro to steadily move higher.
As I look ahead to today’s economic calendar what jumps out at me is two key data numbers for Europe which have the potential to swing price back in the favour of those long Euro. German unemployment numbers are set for release and also Euro Zone inflation data. The ECB President this week reminded the market that the ECB committee believes inflation and wages growth across Europe will continue to improve in coming quarters and if today’s German unemployment data and Euro Zone CPI figures beat economists’ expectations we could see part or all of the fall that has occurred on the Euro in the past 24 hours erased in coming trading sessions. Canadian GDP and US Consumption Expenditure is also slated for release Friday. The Canadian Dollar slipped Thursday on the back of comments from Donald Trump who said Canada was dragging the chain with respect to negotiations on a trade deal.