Kathy Lien is Managing Director of FX Strategy for BK Asset Management
It is a holiday week here in the United States and yesterday’s muted moves had investors looking forward to a quiet rest of the week for currencies. The forex market will trade continuously over the next few days but the equity and bond markets in the U.S. will be closed on Thursday with a half day on Friday.
However with President Trump expected to make a decision on the HK bill and trade headlines ramping up, we would not be surprised if low liquidity during the holidays leads to an expansion in volatility. In fact, currencies actually have a history of breaking out or reaching new milestones the week of Thanksgiving. Just take a look at the charts below.
In 2017 EUR/USD and GBP/USD hit a 1 month high Thanksgiving day while USD/JPY fell to a 2 month low the day before Thanksgiving. In 2016, the EUR/USD dropped to an 11 month low the week of Thanksgiving while USD/JPY rose to a 7 month high. There was no meaningful movement in sterling that year.
In 2015, EUR/USD and GBP/USD fell to a 7-month low the week of Thanksgiving as USD/JPY consolidated. In most cases, the trend that was in place immediately before the holidays continued. No major milestones was reached in 2018 but if there’s a breakthrough on trade, we could see USD/JPY hit fresh 5 month highs above 109.50 and EURUSD slip to 1 month lows below 1.10. Risk appetite remains bid as Trump said yesterday the U.S. and China are nearing a trade deal but he wants to see things go well in HK.
Fundamentally, there’s not much on the U.S. calendar but nothing matters more than the headlines. The euro and Canadian dollar will be in focus, with confidence and labor market numbers scheduled for release from the Eurozone and GDP numbers from Canada Thursday and Friday. Comments from Reserve Bank of New Zealand Governor Orr could also inspire a big move in the New Zealand dollar. NZD was the best performer yesterday, thanks to strong retail sales—spending grew 3 times more than expected in the third quarter.
