G20 & Quarter End Means Lively Friday FX Trade

The highly anticipated G20 meeting kicks off tomorrow and between heightened uncertainty over the weekend and month/quarter-end, Friday should be a lively day for the forex market. US stocks hit record highs in the second quarter and while the greenback tumbled in the month of June, it experienced strong gains in March and April. When investors and portfolio managers rebalance their portfolios at the end of the month and quarter, the sharp rally in U.S. stocks will prompt managers to sell dollars to bring their portfolios back into balance.

This flow could be compounded by pre-weekend profit taking because the big meeting between President Trump and President Xi will be on Saturday. Trump and Putin meet will have an hour long sideline meeting on Friday but its not clear if there will be any revealing headlines because Trump previously told reporters that what he says to Putin at G20 is “none of your business.” All of this poses the greatest risk to USD/JPY because of the Fed’s shift in policy. Today’s flame out candle in USD/JPY signals a deeper correction but new lows won’t be set unless the market is disappointed by US-China trade talks because there’s a wide subset of investors who expect Trump and Xi to make progress this week.

U.S. personal income and spending numbers are also scheduled for release on Friday and while we expect spending to rise on stronger retail sales, income growth could slow because wage growth was weaker last month. First quarter GDP growth was not revised higher like economists anticipated as a surprise downward revision in personal consumption curtailed activity. The Canadian dollar will also be in focus with GDP on the calendar. Trade talk optimism and rising oil prices drove USD/CAD to its lowest level in more than 4 months. The Canadian dollar has been so strong that there’s only been 1 negative day in the past 8 trading days. While Canada’s economy outperforms its peers, at some point they will also feel the sting of weaker global growth and the pain could be felt sooner if the loonie continues to rise.

The Australian and New Zealand dollars extended their gains with NZD/USD hitting a 4-month high. Both currencies were unfazed by weaker NZ business confidence. Chinese industrial profits increased Sterling and euro on the other hand pulled back. Eurozone confidence fell slightly but CPI growth in Germany accelerated. These declines could be driven by President Trump’s critical comments about Germany who he called a security freeloader. Auto tariffs are still a threat to Europe.