January 2020 - Monthly Economic Outlook

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Gain an overview of the latest foreign exchange market trends and anticipate possible market movements.


The strong showing by the euro in December (up by more than 1%) mainly reflects a renewed appetite for risk linked to the following four factors: stabilisation in global growth, positive progress on the trade front between the US and China, accommodative monetary policies helping to keep effective rates ultra low and provide liquidity to the financial markets, and lastly, the Conservative victory in Britain that ensures Brexit will happen on 31 January 2020. The euro also managed to break free of the level of 1.1150 that had formed the upper limit of the range for a number of weeks. Its rise was halted at 1.1200, however. In practical terms, while risk appetite helped the euro in the last few trading sessions, the currency is still being penalised by a lacklustre European context and a high level of economic risk for Germany. It is therefore highly unlikely that the next few weeks will see a much more sustained rise in the euro/dollar above 1.1200. It should be added that low volatility is a feature of most trading sessions. In contrast to statements by her predecessor, the press conference by Christine Lagarde, the new Chair of the ECB, had very little effect on the exchange rate of the single currency. The market is still very much under the influence of low volatility compared with the long-term average.

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As we forecast last month, the euro continued to lose ground against the pound sterling (down by 1.10% since the start of the month). Investors took advantage of the clear victory by the Conservative Party to recalibrate their portfolios and buy into the British currency, a trend that was already well established in November and had intensified as the election approached. The market’s honeymoon with the pound sterling was soon over, however, with the British currency losing nearly all the gains it had made against the euro since the election on 12 December, following a resurgence of uncertainty around the post-Brexit transition. The British government wants to legislate against the possibility of extending the one-year transition period which will start at the end of January 2020, reviving the spectre of a no-deal Brexit. All the legal experts are unanimous in their view that it will undoubtedly take more than a year to negotiate a new trade agreement with the EU. If the political risk remains high over the next few weeks, a bigger correction on the pound sterling is on the cards.


It was no surprise to see the Japanese currency fall back as a result of positive progress on the China-US issue. The EUR/JPY pair posted an improvement of more than 1.6% compared with the start of the month. As we have so often observed, the yen is the main indicator of the progress of negotiations between Beijing and Washington. The announcement of an agreement, the details of which are still unknown, caused investors to withdraw from the Japanese currency.


The prevailing logic on the EUR/CHF was slightly different, since this pair is still subject to intervention by the Swiss national bank (BNS). Such action has been substantially reduced since mid-September as a result of a decrease in risk aversion. We expect the range to be maintained between 1.0850 and 1.1150 over the next few months.


The upturn in the euro was smaller against the Canadian dollar, with an increase of just 0.50% compared with the start of the month. It was basically business as usual, as neither central bank (the Bank of Canada and the European Central Bank) made any change to its rate policy. It is worth noting, however, that the rise in energy prices was a source of significant support for the Canadian dollar (CAD), which served to limit the appreciation of the euro.

Economic calendar:

10/01 USD US employment figures for December 2019
21/01 JPY Bank of Japan meeting
22/01 CAD

Canadian Central Bank meeting

23/01 EUR Réunion de la Banque centrale européenne
29/01 USD

Réunion de la banque centrale américaine