Loonieviews-September 30, 2013

Recap: The spectre of a government shutdown hung over markets like the sword of Damocles with US politicians of both stripes puffed up in feigned indignation over the other side’s proposal’s (or lack thereof) for the Continuing Resolution bill. With no progress by Friday, markets were drifting into risk aversion. Once again, the US delivered a mixed bag of economic data which did nothing to provide any additional clarity to the tapering debate. New home sales rose 7.9 percent erasing the July drop which suggests modest improvement. US durable goods squeaked out a 0.1 percent beating the consensus of zero percent and reignited some US growth concerns. US jobless claims delivered a pleasant upside surprise coming in at 305,000 versus estimates of 325,000, giving a lift to equities and commodities. FX traders ended the week nervously eyeing a shift to risk aversion due to the increase in inflammatory rhetoric from US politicians suggesting a shutdown was becoming inevitable.

The week ahead:The US nonfarm payrolls report is due Friday and this release usually ensures quiet markets and narrow ranges as traders await the data. This week is likely to be different. The apparently "inevitable" shutdown of the US government will shift flows into risk aversion. The impact of normally important data releases, such as Canada’s July GDP and the US ISM Manufacturing PMI will be overshadowed by headlines.

Upcoming Data for Canada

Source: Saxo Bank

Upcoming Data for the United States

Source: Saxo Bank

The key data from Canada will be July GDP which is expected to rebound to 0.5 percent from a drop of 0.5 percent in the previous month. This should help to cap any Canadian dollar weakness around 1.0335-50.

The most important data from the US is Friday’s non-farm payrolls report. The consensus is for a gain of 180,000 jobs. This month’s release will have a much more diminished impact than the August number due to tapering expectations being pushed back until the new year.

Tuesday’s ISM Manufacturing PMI for September is forecast at 55.8 which is virtually unchanged from the previous month.

The USDCAD technical picture
The USDCAD short term technical picture is mixed. USDCAD bulls see a short term uptrend above 1.0290 targeting a break of the 1.0335-50 resistance area to extend gains to 1.0420. USDCAD bears see the bounce from 1.0180 as aggressive but still corrective, while trading below the 1.0335-50 resistance zone. Longer term, the USDCAD appears to still be in a long-term uptrend from September 2012 which comes into play at 1.0215 if one decides that the two day dip to 1.0180 is just an aberration.

Daily USDCAD chart with uptrend from September 2012

Source: Saxo Bank

This week’s perspective
The week will start off dominated by political developments in Washington but for many FX traders, the desire to hug the sidelines on Monday will be complicated by larger than normal fixing flows due to quarter and month end. Portfolios get rebalanced according to the "fix rates" posted by WM/Reuters (11: am Toronto time, 4: pm UK time). Some traders are suggesting that the flows will be dominated by US dollar selling versus the majors except USDJPY.

The risk of a US government shutdown has escalated this weekend and the financial media is in a froth predicting dire consequences for the US economy. (For any who want to know more about whom and what is affected, click this link to the Washington Post) In my opinion, all the chatter about the US government shutdown is just a "reality distortion field" and traders risk making bad decisions because of it. If the government shuts down, it will restart-that’s a given. People (not politicians) will be greatly inconvenienced but only for a very brief time. Some pundits suggest that a government shutdown probably ensures that the debt ceiling issue will be dealt with, avoiding a default. Despite what Washington believes, it is only one of many centers of the universe. There are other events occurring to drive markets particularly the European Central Bank interest rate decision and press conference on Wednesday which will give rise to speculation around Long Term Refinancing Operations (LTRO)

I think that the expected month end/quarter end rebalancing flows should trump risk aversion stemming from the manufactured political crisis in the US. If so, US dollar weakness against the majors (except for the JPY) will occur, but it may only be a temporary phenomenon. However, it could provide great entry levels for long dollar positions leading up to Friday’s non-farm payrolls.


Loonieviews September 27, 2013


USDCAD Open 1.0325-30 Overnight Range 1.0310-26

Original post on Saxo Banks Trading Floor See also chronicles of contrarian on Saxo Bank Trading Floor

The USDCAD was an afterthought during the overnight session but appears to have been supported by CAD selling vs JPY, EUR and GBP, with month end flows making a mockery of FX direction forecasts. Softer WTI prices ($102.42/bbl) may be also supporting USDCAD The threat to shut down the US government by Monday is fueling trading inertia and will overshadow both the US data (Consumer confidence 78 ) and the three Fed speakers. (Dudley, Evans and Rosengren)

A Bloomberg story suggests a shutdown will shave 1.4 percent from 4Q GDP


The short term USDCAD technicals are bullish while trading above 1.0300 but are testing resistance in the 1.0335-50 area. Above here opens up further USD gains to 1.0380 and 1.0410. A move below 1.0300 puts 1.0270 back into play.

Today’s Range 1.0280-1.0350



USDCAD Open 1.0305-10 Overnight Range 1.0307-1.0322

Original post on Saxo Banks Trading Floor

The USDCAD punched through resistance at 1.0315 but could barely make any headway above that level and finally surrendering to gravity during the European session and retesting the 1.0305-07 area. CADJPY had a livelier session touching 96.00 on the back of a report that Japanese pension funds would shift from JGB’s to riskier foreign assets, since proved wrong. Meanwhile, the US political wrangling risking a government shutdown by Monday as well as the debt ceiling debate has kept a damper on trading activity. Any benefits from the US data which includes 2Q GDP (consensus 2.6 percent) and Initial jobless claims (forecast 325,000) could be overshadowed by any of the four Fed speakers today. Gold is $1,336.10 and WTI oil is $103.18

The short term USDCAD technicals are bearish wile trading below 1.0320 with a break of 1.0300 suggesting further downside to 1.0260. A move through 1.0320 argues for a test of 1.0355

Today’s Range 1.0270-30

Loonieviews September 25, 2013


USDCAD Open 1.0308-12 Overnight Range 1.0301-1.0316

Original post on Saxo Banks Trading Floor

The USDCAD was quietly bid overnight albeit in a very narrow range with FX traders still perplexed over the US political uncertainty, the extension of QE in front of today’s US Durable Goods release. (Forecast O.0%, ex transportation 1.0%)

The short term USDCAD technicals are mixed. USDCAD Bulls see the lack of downside through 1.0270 as evidence the short term uptrend is intact as they await a break of 1.0335 to extend gains to 1.0380. USD Bears see the lack of upside above 1.0315 and 1.0335 as evidence the downtrend remains intact and are looking for a break of 1.0270 to extend US dollar losses to 1.0210.

Today’s Range 1.02701.0335

Loonieviews September 24, 2013


USDCAD Open 1.0287-92 Overnight Range 1.0279-92

Original post on Saxo Banks Trading Floor

The USDCAD was pretty much parked in another "ignore the loonie" session. The AUDUSD came under modest pressure while USDJPY rejected strength above 99.00 and the EUUSD flatlined. Canadian Retail sales data, US consumer Confidence and Fed speakers are all on tap. The retail sales data is expected to offset last month’s negative print which could provide the loonie with some support , especially if US consumer confidence disappoints. Wti oil is $103.79 and gold is $1,317.90

The short term USDCAD technicals are bearish. while trading below 1.0305 with a break of 1.0270 extending losses to 1.0240. A move above 1.0305 targets 1.0350

Today’s Range 1.0270-1.0320

Loonieviews September 23, 2013


USDCAD Open 1.0300-05 Overnight Range 1.0288-1.0309

Original post on Saxo Banks Trading Floor

The holiday in Japan got FX markets off to a slow start and even a better than expected HSBC PMI print for China, failed to give the loonie even a little of a lift. The technicals are a tad sketchy and with a week of FOMC speakers, the tapering message is likely to get murkier. Angela Merkel finished one seat shy of a majority in German elections which is good for her, but it remains to be seen how EURUSD will react. Euro zone PMI’s were mixed and ECB President Mario Draghi speaks today as do the Fed’s Dudley and Lockhart. The only US data of note on tap is the Markit PMI (forecast 54.0 vs previous 53.1) Gold is $1,320.20 and WTI $104.92

The short term USDCAD technicals are bearish while trading below 1.0310 but need to break below 1.0260 to extend losses. Meanwhile USDCAD bulls look to buy dollars on dips between 1.0240-60 for a retest of 1.0365 and 1.0420. for today, USD support is at 1.0280 and 1.0260 Resistance is at 1.0310 and 1.0335

Today’s Range 1.0280-1.0310

Loonieviews September 19, 2013


USDCAD Open 1.0193-97 Overnight Range 1.0192-1.0231

Original post on Saxo Banks Trading Floor

And I’m free, free fallin’
Yeah I’m free, free fallin’

Source: Tom Petty 1989 Full Moon album

The USDCAD is free fallin’ following the Bernanke head fake. The FOMC declined to taper in September despite what many believe was forward guidance alluding to a move. Overnight the USD dropped vs the majors except cable and yen. GBPUSD ran into a brick wall at 1.6160 and dropped on worse than expected August Retail sales Data. USDJPY is just plain weird probably due to Japanese year end factors. Gold is $1,362.80and WTI oil is $108.72/bbl

The short term USDCAD technicals are bearish. The overnight break of the 200 day moving average ends the last vestige of support ahead of parity.For today, USD support is at 1.0180 (overnight low) and 1.0150. USD Resistance is at 1.0215 and 1.0240

Today’s Range 1.0160-1.0215