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Market Macro Wrap 07 Jul 2017
USD has ended the week on a positive note after a very strong NFP print, however, weak earnings data suggest that we are not going anywhere in a hurry. Next week the focus will turn to the US CPI and Fed Chair Yellen testimony and until then USD may remain range bound.
This week marks also marks a significant change in outlook for bonds with the German (0.57%) and U.S. (2.4%) 10-year yields rising sharply both up approximately 20bp. The ECB minutes on Thursday were slightly hawkish and the Euro-area data on Friday has also added to the positive Euro tone. Hence, unless we see some weakening in Euro data next week a further upside is very likely.
JPY is still at the bottom of the pile, down 0.79% versus USD, as losses have accelerated this week. A major reason for JPY weakness is widening rate differential; German and US yields have rallied while JGB bonds remain largely unaffected.
GBP slipped on poor industrial production (-0.1% actual vs 0.4% expected), worse than expected Manufacturing production and widening trade balance; we expect GBP to lose further ground.
CAD continued to be strong (number one currency this week) helped by a very strong jobs report. The market is now pricing in a full 25bp rate hike at the BoC policy meeting next week and hence, it is difficult to see how CAD can extend its gains further. In our view, we will need to see a dramatic change in BoC view on the current stimulus to push below the 1.2824 area on USDCAD.