GBP/USD, USD/CAD, USD/MXN – Daily ForecastBrexit turmoil, oil prices and August U.S job reports on minds of investors
Pound surges as Parliament Reject Election Bid
There was more drama in Parliament on Wednesday, as lawmakers voted in favor of a bill which would prevent the UK from crashing out of the European Union without a deal. The bill will now move on to the House of Lords, which is expected to ratify it on Friday. Parliament also voted down an attempt by Boris Johnson to call a snap election. Despite the political turmoil in Westminster, the pound has stormed higher. The currency surged on Wednesday, gaining 1.2%. The pair has gained 0.65% in Thursday trade.
The volatility continues this week for the pound, which posted sharp gains on Wednesday and has moved higher on Thursday. Will the rally continue?
On the upside, 1.2329 was tested earlier on Thursday and remains under strong pressure. Above, there is resistance at 1.2420.
I am keeping an eye on 1.2180, which has some breathing room in support.
Canadian Dollar Slips Despite Higher Oil Prices
The Trump administration continues to tighten its chokehold on Iran, as the White House announced new sanctions on Tehran. These measures are aimed specifically at Iran’s oil exports, and take aim at a shipping network that Iran uses to sell oil. The move was the catalyst for a sharp rise in oil prices, as it is becoming increasingly difficult for Iran to sell oil on world markets. This has reduced the global supply of oil and is putting upward pressure on oil prices. On Wednesday, oil responded with strong gains. U.S. West Texas Intermediate for October delivery jumped 3.8% to close at $56.00, its largest one-day gain since mid-June. However, this was of little help to the Canadian dollar, which dropped sharply, losing 0.85% on Wednesday. USD/CAD has steadied in Thursday trade.
U.S. crude oil inventories declined by 4.2 million, a sharper decline than the estimate of a decline of 2.4 million. Still, the drop in supply failed to boost the Canadian currency.
Ahead – Canadian and U.S. Employment Reports
On Friday, both Canada and the U.S. will release employment numbers, and this could have a strong impact on the movement of USD/CAD. In the U.S. wage growth is expected to remain unchanged at 0.3%, while nonfarm payrolls are projected to dip to 160 thousand. On the Canadian side, the economy is expected to create 18.9 thousand jobs, after two successive declines. If the estimate is accurate, the Canadian dollar could post strong gains.
USD/CAD posted sharp losses on Wednesday, as the pair tested the round number of 1.32. This line remains relevant, and finds itself in a support role in Thursday’s North American session. After starting the day with losses, USD/CAD has recovered. Still, it’s too early to tell if this retracement upwards is just temporary.
The Mexican peso has not been immune from this week’s volatility in the currency markets. USD/MXN has declined by 2.0% this week. Interestingly, this is shaping up to be the first week in the red for the pair since July. The peso has posted steady gains since late August, but these hard-won gains have been wiped out in the past two days. What’s next for the peso? The currency is range-trading on Thursday, but this could turn out to be a temporary respite before the peso slide continues. Barring a complete reversal, it looks like this will be a week to forget for the Mexican currency.
On the fundamental front, U.S. employment numbers on Friday could have a major impact on the movement of the pair. Traders should keep a close eye on wage growth and nonfarm employers, both of which should be treated as market-movers. Wage growth is expected to remain unchanged at 0.3%, while nonfarm payrolls are projected to dip to 160 thousand. If these numbers prove to be stronger than expected, it would point to stronger economic growth in the U.S., and higher risk appetite could boost the Mexican peso.
There is a clear downward trend line in the movement of USD/MXN, which began earlier in the week. The pair has leveled on Thursday – is this a buying opportunity? It’s unclear when USD/MXN will break out of this range. I would counsel patience at this stage, especially when dealing with a risk currency like the Mexican peso.