Euro Extends Gains

Daily Analysis - 28/08/2017

Draghi Holds Back from Talking Down Currency

euro-gains


The Euro climbed to a two and half year peak against the US dollar on Monday after European Central Bank President Mario Draghi refrained from talking down the currency during his Jackson Hole remarks. In addition to Euro strength, the impact of Tropical Storm Harvey is weighing on the greenback following the weekly reopening.

Traders Bet on ECB Tightening


The common currency soared close to 1.00% on Friday after Draghi did not touch upon the Euro’s recent strength during the Jackson Hole conference. The ECB is widely tipped to soon begin tapering the crisis-era stimulus programme and asset purchases. However, policymakers remain concerned about the impact of a stronger currency for the bloc's exports. By not talking about the Euro, traders perceived that Draghi had increased the odds of the Central Bank starting to wind down its stimulus.

The Euro rallied to $1.1926 on Friday, its highest since January of 2015. The EURUSD pair extended those gains in early Monday trade to hit a session high of 1.1959, which represents the immediate upside resistance. A break above this level could see fresh Euro bulls enter the market and push the pair beyond 1.2000.

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Chinese Industrial Profit Growth Slows


The rate of earnings growth in China's industrial firms slowed in July as heat waves across the country forced a large number of factories to halt production according to data from the National Bureau of Statistics. The latest cooling reinforced investor concerns that the Chinese economy will decelerate over the coming quarters amidst property market curbs and higher lending costs. Official data released ono Sunday showed that profits within China's industrial sector grew by 16.50% from a year earlier to CNY 612.70 billion ($92.20 billion) compared to the 19.10% increase recorded back in June.

The figure marked the slowest pace of growth since April, reversing three straight months of acceleration. During the first seven months of the year, firms posted a 21.20% jump in profits, marginally lower than the 22.00% annualized growth logged in the January-June period. USDCNH is sliding in Monday morning trade to currently hover around the 6.6325-mark.

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German Business Confidence Dips


Sentiment among German businesses eased for the first time this year in August per a leading survey released on Friday, indicating that the consumption-led expansion in Europe's largest economy might have reached a plateau. The Munich-based Institute for Economic Research (Ifo)’s Business Climate Index inched down to 115.9 from 116.0 in July. The figure compared with a consensus forecast for a reading of 115.5.

The decline in August was largely due to businesses taking a less positive assessment of the current economic situation.  As the German economy powered a stronger-than-expected recovery in the wider currency area, the Ifo index repeatedly bucked expectations in the past few months to touch a series of record highs. In the meantime, DAX 30 futures closed Friday at 12164 before retreating in early Monday trade amid Euro strength.

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dax-sep17daily08282017

Canada Records Small Budget Surplus


The Canadian Government reported a small budget surplus during the first three months of the current fiscal year as higher tax revenues outpaced increased spending.  Figures compiled by the Finance Department showed that through the end of the second quarter, the federal government recorded a surplus of CAD 83.00 million ($66.40 million) versus a deficit of CAD 995.00 million reported back during the same period a year earlier.

Revenues during the April to June period grew by 4.90% due to higher corporate and personal income tax receipts. Expenses edged up 4.00%, largely owing to higher benefit payments to elderly and children. In the federal budget released in March, the Government forecast a deficit of CAD 25.80 billion for fiscal year 2017 through 2018. The USDCAD pair is currently flat on the session, pulling back from earlier session highs to last trade around 1.2475.

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