FUNDAMENTAL ANALYSIS
Employment in the Eurozone has decreased to its lowest level in seven years at 9.8% for October, versus expectations of remaining unchanged at 10.0%.
With the ECB extending its QE programme and presenting an overall dovish tone
at their
D e c em b er meeting, my f u n d amen ta l bearish bias for the
euro CAD
During their November meeting, the Bank of Canada leſt monetary policy unchanged as was widely expected. In the accompanying statement, the central
FX has
increased even further and I expect the euro to remain pressured for the foreseeable future.
JPY Te
Bank of
As the Bank of Canada are expected to remain on hold for the time being with inflation moving back into their target range, I expect oil prices to remain the primary driver of CAD in 2017 due to it being a key source of e c on om i c growth and income for the Canadian e c on om y . Strength in oil prices should see CAD remain supported, while weakness in oil prices should see CAD pressured.
Keep track of events
Japan leſt interest on excess reserves at -0.10% at its December meeting. One of the Bank of Japan’s concerns is that low interest rates
could hurt the profits and
stability of financial institutions - but that hasn’t forced them to alter course yet. For now, the central bank’s QQE programme looks set to continue at an annual rate 80 trillion yen.
Although fundamentally JPY is a bearish currency as inflation falls, it will continue to remain attractive as a safe-haven currency during 2017 and therefore strengthen during times of uncertainty/risk-off sentiment.
JPY will continue to remain attractive as a safe-haven currency during 2017
bank stated that ‘global economic conditions have strengthened as anticipated’. However, they went on to add that ‘uncertainty, which has been undermining business confidence and dampening investment in Canada’s major trading partners, remains undiminished’.
Furthermore, they acknowledged that considerable slack remains in the labour market despite recent gains - and that inflation has picked up slightly, but still remains below expectations. Overall, the November meeting failed to provide any new surprises.
We’re in time
of a high
unpredictability. Tat’s why it’s more important
than ever to keep track of global events and understand the alternative scenarios that might unfold from them. If 2016 is anything to go back, our best efforts to predict what happens can sometimes fall short. However, a deep understanding of the central banks and their priorities can protect traders from periods of volatility.
Jarratt Davis
FX trader, Funds Manager Mentor and Author of
How to Trade a Currency Fund FX TRADER MAGAZINE January - March 2017 25
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