The Currency Market Makes a Slow Start Amidst Thin Liquidity

**Overview:**

• GBP/USD is recovering from recent lows but remains vulnerable to Brexit uncertainty

• USD/CAD is directionless as it keeps an eye on the oil futures market.

• WTI Crude oil gains on the day after crashing by 9% last week.

**Highlight:**

EUR/USD has gone into a consolidation zone after bouncing back from its lowest level since April 2017. The move was triggered by a general USD selloff after China retaliated with an adjustment to the CNY. The euro bloc continues to spew poor economic data and there are concerns that politics in Italy could inject more uncertainty in the shared currency. For now, the pair seems to have largely ignored these macro shifts. The outlook remains bearish.

US DOLLAR

The US Dollar Index barely moved the needle this morning as investors prefer to avoid heavy directional bets ahead of key US inflation report card and heavy-duty Chinese data (industrial output, employment and sales). Today, the economic slate is light, but the market remains vulnerable to trade-related rhetoric, political uncertainty simmering in Italy and the never-ending Brexit saga. We noticed some positions covering-related activities in the GBP/USD, crude oil prices making a swift return to trade at $54.65 a barrel and gold keeping its bid tone at $1,500 an ounce.

BRITISH POUND

Pound sterling is enjoying rare gains in a move that could be attributed to position rebalancing ahead of the releases of key economic data. The market is waiting for employment, inflation and retail sales numbers. Last week, the report showed the economy had contracted amidst growing uncertainty over UK-EU future relationship. Incoming data is expected to be volatile and unlikely to make the Bank of England budge from current policy. Further gains in the GBP/USD could be capped around the 1.21 region.

EURO

EUR/USD stays within touching of the 1.12 handle in a data-light session. Market participants prefer not to venture in directional bets ahead of German ZEW economic sentiment and GDP report out of the euro bloc. They are also wary of political instability brewing in Italy – the country could be heading towards an election and could weigh on the euro.

CANADIAN DOLLAR

USD/CAD is trading around the mid-point of 1.32 searching for a new direction. The loonie went through a volatile session after crude oil prices plunged 9% over the previous week. We expect the pair to sensitive to ongoing US-China trade tensions, oil prices and growing local expectations that the Bank of Canada could be forced to make an insurance rate cut in two weeks’ time.

AUSTRALIAN DOLLAR

Gains by the strengthening US dollar are weighing down the Australian dollar. Falling Chinese iron ore futures, combined with spoiling of investors' appetite for risk have sunk AUD to around 0.6750.

FEATURED CURRENCY

The better mood in the market is spurring shallow risk-on activities, helping the greenback to recover against the Yen. USD/JPY is still vulnerable to lower lows. Trade risks remain live and we expect the JPY to keep attracting safe-haven flows. US inflation report card and Chinese data are expected to drive market sentiment this week.

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