Week in FX Americas – Dollar Strengtens Thanks to China and Draghi

  • US Dollar higher against most majors after China Stimulus and Draghi’s statement
  • Federal Reserve Minutes show lack of concern from foreign headwinds
  • Canadian dollar riding commodities surge after China’s Central Bank decision

The EUR/USD continued to fall this week after European Central Bank President Mario Draghi urged European Union leaders to do whatever it takes to avoid stagnation. Whatever it takes in this case is quantitative easing. Sovereign bond-buying to increase liquidity and stimulate higher consumption and inflation spurring economic growth. The Federal Reserve just finished its own quantitative easing program in October. The QE and forward guidance combo have a mixed track record but its hard to deny that the U.S. economy looks healthier now than it did before those were implemented.

The divergence between the road ahead for the Federal Reserve and the ECB will create major global economic trends that can’t be ignored. The Fed has been coy in mentioning a clear schedule for when it intends to unleash the first rate hike for U.S. rates. The ECB on the other hand is facing an internal battle as there are multiple obstacles for Mario Draghi to unleash quantitative easing that is needed to avoid falling deeper into deflation.

The minutes from the Federal Open Market Committee (FOMC) released this week showed that the Fed is confident on the pace of the U.S. economic growth and made a rate hike next year a very real possibility. Economic data out of the U.S. was mixed with the Flash PMI coming in lower than expected, but then again all major economies disappointed with China and even Germany dropping. The jobless claims were lower last week and point to a robust employment market. No wonder the Fed made no mention of the effects of a potential crisis offshore as a deterrent for their plans for the U.S. Economy on their minutes.

Canadian inflation beat market forecasts and made the case for the Bank of Canada to join the Rate Hike Central Bank Club. The Loonie jumped 2% on higher rate expectation as well as the commodity surge that was spurred by the shock announcement from the People’s Bank of China. Higher demand from the now largest consumer of energy could boost the CAD.

Next Week For Americas:

Japan will not be kicking things off in the Asian session as they celebrate their Labor Day on November 23. Bank of Japan (BoJ) Governor Haruhiko Kuroda will grab most of the attention from his planned speeches on Monday. He is scheduled to speak at a meeting with business leaders in Nagoya and at the Paris Europlace International Financial Forum in Tokyo. The governor is not expected to stray too far from the BoJ’s official rhetoric from last week’s monetary policy meet. Meanwhile, a German Ifo business confidence survey due on November 24 should be capable of keeping the EUR moving.

The market will try and engage with the minimum of interest in U.S. preliminary gross domestic product (GDP) figures on November 25, and U.K. quarter-over-quarter GDP data on November 26. No one wants to have too much strapped on as the U.S. begins to celebrate Thanksgiving, the largest and most traveled holiday period in the American calendar. Historically, FX volumes plummet over the two-day festivities (it’s a financial half day, but most make it a long weekend). Be aware that the Organization of Petroleum Exporting Countries happens to have an all-day meeting scheduled for the same day — could the ministers surprise the crude oil market?

Fore more market moving events visit the MarketPulse Economic Calendar


* USD Gross Domestic Product
* USD Consumer Confidence
* GBP Gross Domestic Product
* USD Durable Goods Orders
* EUR German Unemployment Change
* EUR German Consumer Price Index
* JPY National Consumer Price Index
* EUR Euro-Zone Consumer Price Index
* CAD Quarterly Gross Domestic Product Annualized

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency
trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza