Loonieviews-China Stirs the Wok but CB’s in focus


LOONIEVIEWS

original post on Saxo Bank’s Trading Floor

China stirs the wok but CB’s in focus

A Tale of Two GDP’s- Canada and US Diverge

Risk aversion replaces Chicken Kiev on menu

USDCAD technicals looking for move lower

The highly anticipated US GDP data (2.4 percent) was slightly lower than the already reduced forecasts of 2.5 percent which combined with the higher Eurozone inflation data (Feb. 0.8 percent vs. 0.7 percent forecast y/y) put downward pressure on the US dollar. The EU inflation report had the larger impact as it appears to have diminished concern that the European Central Bank (ECB) would ease rates next Thursday. The above mentioned data gave the loonie a bit of a boost but the release of the Canadian GDP really greased the rails, putting USDCAD on the defensive and making the USDCAD bulls nervous.

Canadian GDP surged to 2.9 percent in the fourth quarter, handily beating forecasts of 2.5 percent, providing a much needed lift to the domestic economic outlook and seriously damaging any lingering thoughts of a more dovish Central Bank statement on Wednesday.

Chart: Canada GDP

Risk Aversion threats read like Tom Clancy novel

Command Authority is the title of the late Tom Clancy’s latest novel; a tale depicting events eerily similar to what is unfolding in the Crimea/Ukraine. Unfortunately, Barack Obama is no Jack Ryan and there aren’t any virtuous American special operatives to come in and save the day. There are reports that Russian marines have seized the airport and government buildings in Crimea, a plausible story due to the high concentration of Russian’s living there. The Russian Federation also considers the Black Sea ports vital to their national interest. There are other tinderboxes around the globe just waiting for a match including China and nations surrounding the South China Sea. Also, China has not backed off of the inflammatory rhetoric and military posturing with Japan over the Diaoyu/Senkaku islands which both claim. Still in Asia, the Thailand government and protestors are exchanging gunfire. In South America, the Argentinean president has reportedly fled the government palace in a helicopter in the face of Ukrainian style civil unrest. Venezuela is smoldering following recent elections that have left the country divided. And the Middle East is still a mess. The Ukraine/Crimea events, due to the freshness of the actions and Russia’s role, may provide an element of uncertainty to markets but for the most part, all of the above are merely distractions ahead of next week’s Central Bank meetings and major data releases.

PBOC squeeze pokes holes in long CNY positions

The Peoples Bank of China(PBOC) appear to be fans of Iron Maiden, not the British rock band but of the medieval torture device as evidenced by the nasty squeeze that they orchestrated on long CNY positions. The re-introduction of two-way risk into CNY trading led to a spill-over effect in other markets on fears that the moves may induce a further economic slowdown in China. Just when financial markets are starting to normalize (or what passes as normal, these days) China stirs the wok.

The Week that was

This week started with numerous comments from officials attending the G-20. Mario Draghi, ECB president was quoted as saying that "policy makers were ready to add stimulus if outlook for prices deteriorate, though there are currently no signs of deflation in the Euro area" Traders focused on the first part of the sentence and EURUSD came under pressure. China’s CNY devaluation and Ukraine developments had traders eyeing risk aversion moves. On Thursday, Janet Yellen’s highly anticipated speech proved to be an echo of her previous testimony while US Durable goods surprised to the upside. The Fed chairwoman blamed the weather for the US slowdown which is consistent with most analysts’ conclusions.

The Week that will be

Next week is setting up to be rather entertaining at least in FX trading opportunity terms with an full slate of major global data releases on tap in addition to interest rate decisions from the Reserve Bank of Australia (RBA), the Bank of Canada (BoC), the Bank of England (BoE) and the European Central Bank (ECB). The HSBC China Manufacturing PMI ahead of a slew of Eurozone PMI’s will set the tone early with traders looking for evidence of strengthening in global economic growth. The week will end with a bang with the release of the US nonfarm payrolls report and the Canadian employment report. Both releases are noted for the inaccuracy the consensus forecasts.

USDCAD technical outlook

The short term USDCAD technicals are bearish while trading below 1.1140 which represents the third in a series of lower highs, the previous two being 1.1224 and 1.1158. The break of the uptrend line (4 hr chart) at 1.1120 points to a deeper correction to 1.1050. A break of this support level could see a retest of the 1.0910 low, last seen two weeks ago. A failure to move below 1.1050 will keep the existing 1.1050-1.1190 consolidation range intact.

Chart: USDCAD 4 hour

Source: Saxo Bank

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Loonieviews February 28, 2014


LOONIEVIEWS

USDCAD Open 1.1125-30 Overnight Range 1.1115-31

The overnight session saw the loonie trade like the a block of ice, frozen by a polar vortex waiting a thaw from GDP data and month end rebalancing flows. The rebalancing requirements are to SELL US dollars, not buy as I wrote earlier this week. Elsewhere, the FX markets were flapping like a Peking Duck near the cooking pot. Another aggressive Chinese devaluation of the Renmimbi, reportedly to squeeze bullish CNY positions and add an element of two way risk to trading. Not to be outdone, the EURUSD soared on higher than expected inflation data reducing risk of any easing at next ECB meeting.

The intraday USDCAD technicals are modestly bullish while trading above 1.1110 but needing to break resistance at 1.1140 and then again at 1.1160 to spark an additional rally. A move below 1.1110 risks a retest of 1.1050.

Today’s Range 1.1040-1.1140

Loonieviews Feb.27


LOONIEVIEWS

USDCAD Open 1.1124-29 Overnight Range 1.1122-38

The USDCAD edged higher, almost as an afterthought in a lively overnight session. Weak Australian data put downward pressure on AUDUSD while USDJPY dipped in perhaps a nod to risk aversion on Russian military exercises on the Ukraine border. EURUSD is soft ahead of Friday’s inflation data and the ECB meeting next week. Janet Yellen’s speech today is also providing some support to the US dollar in the unlikely event that she says anything different than two weeks ago.

The intraday USDCAD technicals are bullish while trading above 1.1105 but needing to break resistance in the 1.1140-50 zone to risk another look at 1.1220. Longer term, USDCAD is locked within a 1.0940-1.1220 band since mid January and it makes sense to trade this band. For today, USD support is at 1.1110 and 1.1090. Resistance is at 1.1140, 1.1160 and 1.1190

Today’s Range 1.110-60

Loonieviews February 26, 2014


LOONIEVIEWS

USDCAD Open 1.1076-80 Overnight Range 1.1074-1.1096

USDCAD traded choppily in a narrow band consistent with the trading patterns of the other majors. In Asia, although the CNY fix was higher again, FX markets were less jittery believing it to be more of a mechanical adjustment rather than sign of economic weakness. The UK data provided fodder for the European session but it proved to be distracting rather than directional. The North American session is poised to mirror the overnight moves due to a lack of meaningful data ahead of key European and US data on Thursday. Gold is at $1,340. 50 and WTI is $102.60

The intraday USDCAD technicals are bearish while trading below 1.1090 looking for a break of 1.1050 to extend losses to 1.1000-10. A move above 1.1090 targets 1.1120. For today, USD support is at 1.1070, 1.1050 and 1.1020. Resistance is at 1.1090, 1.1110 and 1.1140

Today’s Range 1.1060-1.1110

Loonieviews February 25, 2014


LOONIEVIEWS

USDCAD Open 1.1060-65 Overnight Range 1.1056-1.1078

The USDCAD decline stalled at 1.1055 overnight but gains were unimpressive as traders bide their time ahead of Friday’s Canadian and US GDP data. China has managed to muddy the works by actively weakening CNY attempting to promote "two-way" trade.. This has caused a wee bit of discomfort to currency traders looking to fret about something ahead of next week’s central bank meetings and Canadian and US employment reports. Today’s US Case-Shiller Housing Price report and the Consumer confidence are on tap.

The short term USDCAD technical are bearish below 1.1085 looking for a break of 1.1055 to extend losses to 1.1020. Below 1.1020 puts the 1.0960-80 area in play A move above 1.1085 argues for a retest of 1.1120. for today, USD support is at 1.1055, 1.1040 and 1.1020. Resistance is at 1.1085, 1.1105 and 1.1120

Today’s Range 1.1040-90

Loonieviews Februiary 24, 2013


LOONIEVIEWS

USDCAD Open 1.1108-13 Overnight Range 1.1105-1.1140

USDCAD trading to start the week has just been noise with North American opening back to where it started in Asia. The EURUSD is also back where it started in Asia, unable to hold gains despite decent German IFO data with comments from ECB’s Draghi weighing on the currency. GBPUSD and EURUSD traders are still trying to figure out the Vodafone/Verizon flows which get paid on Mar.4 and Mar.10. It is likely to be a choppy week ahead of key data releases from Eurozone, the US and Canada.

The intraday USDCAD technicals are bearish while trading below 1.1225 with a break of 1.1090 extending losses to 1.1070 and then 1.1030. A move above 1.1130 targets 1.1160 and then 1.1190.

Today’s Range 1.1090-1.1140

Loonieviews February 21, 2014


LOONIEVIEWS

USDCAD Open 1.1162-65 Overnight Range 1.1065-90

Loonie Rides the Loop De Loop

The loonie is riding the Loop-de-Loop and traders are hard pressed to keep from hurling. The USDCAD triggered stops on the break of 1.1120 during the European session and climbed to 1.1190 on anticipation of weak Canadian data releases today. They were half right. The Consumer Price Index (CPI) handily beat forecasts, rising to 1.5 percent year over year, (forecast 1.3 percent) and diminishing the risks of an interest rate cut for those actually believing that a cut is a possibility.

Chart Canada CPI

Retail Sales, on the other hand, were weak, dropping 1.8 percent in December vs. forecasts for a mere 0.4 percent decline. Extreme weather conditions are cited as a key factor for the miss. The USDCAD reacted predictably to the news dropping from 1.1170 to 1.1135 as weak intraday long dollar positions got squeezed.

Week in Review-Snapshot

Canada and the USA returned from a holiday weekend on Tuesday with sterling in the spot light due to a host of data releases (CPI, PPI and Retail Sales) while EURUSD traders had to contend with ZEW surveys. The FX activity following the data proved to be just "noise" with traders looking ahead to Wednesday’s Federal Reserve Open Market Committee (FOMC) minutes. The minutes didn’t provide any new information but the US dollar caught a bid. Part of the reason may have been because the FOMC members were discussing interest rates. Although that shouldn’t be surprise, since the next move is up, traders may have been spooked. The loonie also got sucker-punched. The USDCAD appeared to be well offered at the start of the North American session but shortly after 8:30 am USDCAD started moving higher blowing stops at 1.0960 and 1.1020 and it never looked back losing about 1.4 percent in a day. It still hasn’t recovered. A soft HSBC China PMI print reopened concerns that the slowing Chinese economy will have a negative impact on global growth adding to the downward pressure on the loonie and other commodity currencies on Thursday. The Friday session was understated except for USDCAD with the rest of the major’s content to wallow within recent ranges.

US Dollar index may be on the move

The US dollar has strengthened against all the majors this week with the exception of EUR and CHF. The US dollar index (DX) February decline appears to have bottomed out at 80.00 and is attempting to crack the 80.47 resistance area; if successful it would confirm that a new US dollar uptrend is in place. A failure to move higher would lead to more choppy range trading among the G-7 currencies.

Chart USDX-Daily

USDCAD-The struggle within

This week’s sharp reversal from the USDCAD low’s at 1.0910 made it crystal clear that the underlying Canadian dollar sentiment is negative yet today’s CPI data should introduce an element of uncertainty to the view. A core tenet in the USDCAD bull’s bible is that the Bank of Canada’s focus on inflation readings persistently below target meant an increasing probability of an interest rate cut. Today’s data should have seriously damaged that notion. The recent weak Canadian economic data has a lot to do with the nasty winter weather, the same as the US and it has done a good job of masking the health of both economies. The loonie appears to have decoupled from WTI as it isn’t getting any benefit from the firm oil prices. Consequently, the loonie shouldn’t be punished by the latest setback in the XL pipeline approval process due to a Nebraska judge’s ruling. There isn’t a bunch of truly actionable data from the US or Canada next week until Thursday with Durable goods on tap as well as a speech by Janet Yellen. As a consequence, USDCAD should be trapped within a 1.1060-1.1200 range. Friday could be another game changer with a slew of important US data due as well as Canadian GDP and the usual month end rebalancing shenanigans.

USDCAD Technical Outlook.

The USDCAD short term technicals are bullish following the break of 1.1060 with a short term uptrend intact above 1.1130. A move below 1.1130 would negate the uptrend and lead to a return to the breakout level. A break of today’s high at 1.1190 should put the focus back on the 1.1224-50 resistance zone. Only a move below 1.0850 negates the medium term uptrend. For the week, USD support is at 1.1130, 1.1090 and 1.1060. Resistance is at 1.1190, 1.1220 and 1.1250