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Euro Strengthens Further

ECB President Draghi Works His Magic

euro-rising

European Central Bank President Mario Draghi reiterated his commitment to price stability in a speech on Monday, adding that the Central Bank is prepared to increase asset purchases to achieve the mandate. EURUSD rallied during speech, rising from an opening price of 1.0952 to 1.0987 before gaining additionally overnight and climbing back above 1.1000.

South African Rand Comeback

The South African Rand managed a faint rally after President Zuma’s to decision to reappoint a former Finance Minister after one of the replacements was sacked last week. The USDZAR currency pair declined substantially on Monday, after the President picked new Finance Minister for the third time within a time period of 5 days, a relief for markets concerned about the outlook. The President abruptly terminated his Finance Minister last week who had held the post for about 18 months and appointed a new “unknown”. Following the market turbulence that plunged the South African Rand, President Zuma then reappointed a new minister, a veteran, who in the past helped to steer the nation’s economy through its first recession. However, despite the gains in the Rand, recent indecision by President Zuma has raised questions within the African National Congress about his tenure.

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Euro Area Industrial Data Improves

After a two-month decline, Euro Area industrial output rose higher than anticipated in the latest reading. October’s month on month values recorded an increase of 0.60% over the previous month’s contraction of -0.30% while exceeding analyst estimates of 0.30%. Year over year production also improved to 1.90%, surpassing both the prior figure and estimated value of 1.30%. October's return to growth, if maintained, suggests a good starting point for the final quarter of the fiscal year and a stronger outlook for the upcoming year. The monetary policies enacted by the ECB is helping to boost industrial borrowing, enabling more investment and additional output. ECB President Draghi in a speech Monday reiterated that the Central Bank is willing to add additional stimulus and increase the amount of existing easing in order to meet the banks’ desired target of price stability.  The Euro continues to trend higher after gaining momentum overnight.

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eurgbp12152015

RBA Minutes Add to Dovish Outlook

The Reserve Bank of Australia released its minutes overnight from its latest Monetary Policy Committee Meeting on December 1st which saw rates left unchanged at a record low of 2.00% for the last 7-months. The Central Bank stated unequivocally that low interest rates are aiding consumer spending while the weaker Australian dollar supports local firms in the export economy. Despite having some positive economic data, such as strong job creation and lower unemployment, officials said that subdued inflation may see the RBA act further new easing policies if need be despite the overheating housing economy. Australia being primarily a commodity exporter, continues to suffer from plunging commodity prices and softer exports as China’s economy slows. When asked if a possible rate cut may be due in February, RBA Governor Glenn Stevens avoided giving out a clear answer, stating that economic data will be re-examined after the holidays.

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Yuan Devalued Further

In its efforts to spur higher growth in the export economy, the People’s Bank of China continues to intervene to keep the Yuan competitive in a challenging trade environment.  The PBOC fixed the dollar higher like it has normally done since the start of November with the offshore USDCNH pair continuing to trend higher. When China abandoned its hard peg to the dollar in 2005, it also said it would evaluate the Yuan against a basket of currencies. The challenge that China faces is that its operational policy diverges from its declared policy. A slowdown in China's once booming economy, the growing expectations of tighter monetary policy in the US, and capital outflows have all hurt the country’s currency recently. Recent lower fixings against the dollar have also supported that view, with the PBOC setting Monday's midpoint rate at 6.4495 per dollar, the weakest level since 2011.

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usdcnh12152015

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