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