Loonieviews March 31, 2014


LOONIEVIEWS

USDCAD Open 1.1048-53 Overnight Range 1.1045-1.1065

The USDCAD marked time overnight although the other majors were active. Japan started the new fiscal year with a rally in USDJPY and AUDUSD retreated throughout most of the Asian session. EURUSD ignored weak inflation data (0.5% vs. forecast 0.6%) but that may change as we get closer to the ECB meeting on Thursday. Today’s Canadian Jan. GDP is expected to rebound to 0.4% following the effects of the Dec. ice storm. Those looking for the data to beat consensus may be disappointed as the Jan. weather was lousy too. It is also month end and quarter end which could see US dollar selling.

The Intraday USDCAD technicals are bearish while trading below 1.1060, looking for a break of support in the 1.0990-1.1000 area to extend losses to 1.0940. A move above 1.10600 suggests a return to 1.1105. For today, USD support is at 1.1005, 1.0990 and 1.0960. Resistance is at 1.1060, 1.1080 and 1.1105.

Today’s Range 1.0970-1.1040

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USDCAD- It’s a correction not a trend change, eh! 28Mar14


USDCAD- It’s a correction not a trend change, eh!

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Michael O’Neill

Filed in Loonie Views

Canada, Just now 28 March 2014 at 14:32 GMT+0

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The FX trading week is coming to a close with a bout of profit taking curtailing this week’s US dollar sell-off in USDJPY and the commodity currencies while EUR and GBP also recouped some losses. This week’s FX moves appeared to be driven by second tier data and geo-political risks but were lacking in a cohesive underlying trend suggesting that it was just noise as traders await next week’s European Central Bank meeting and the US nonfarm payrolls report. And one of the biggest beneficiaries of the directionless market was the Canadian dollar which gained over 2 percent.

The running of the bulls-loonie style

We are over three months away from the annual Running of the Bulls in Pamplona, Spain, nevertheless USDCAD FX traders have enacted a loonie version of the event. USDCAD bulls are stampeding for the exits (or a least trotting rapidly) for no apparent reason. It was barely a week ago that USDCAD appeared to have broken significant resistance in the 1.1225-40 area and after it touched 1.1270 the argument was made that at short term bottom was in place at 1.1160. Short term bottom was an apt description when the US dollar cut through it like a hot knife through butter. The interesting fact about the sell-off is that it is a wholly off-shore move; domestic factors have not played any role.

Putting this week’s move in perspective

To better understand the moves of the past 36 hours, it makes sense to review why USDCAD achieved the 1.1270 peak in the first place. The "Buy USDCAD" trade started to gain popularity in September 2012 when the currency pair was trading at 0.9630. It was around this time that the term "Great White Short" was coined by foreign hedge funds to describe the selling of Canadian equities and bonds in anticipation of a US style housing crash occurring in Canada. The USDCAD uptrend they started remains firmly entrenched today while trading above 1.0570. The other major factor behind the bearish Canadian dollar sentiment was the sharp slowdown in China. China’s annual GDP growth rate peaked at 11.5 percent in 2010 and it is currently 7.7 percent. Last October, the Bank of Canada expressed concern over the country’s low inflation rate and removed the tightening bias from their policy statement. In addition, at that time, Mr. Poloz was only on the job about 4 months and because of his previous role as the president of Export Development Corporation, he was thought to be encouraging a weaker Canadian dollar. The USDCAD rally accelerated right into year end. There were numerous other factors contributing to the bullish US dollar bias including weak economic data and fears that Canada’s growth would greatly lag that of the US. This year kicked off the way the previous year ended-USDCAD was in demand. Meanwhile the Commitment of Traders report and various major bank studies showed short CAD positions to be at high levels and seemingly unconcerned with bouts of Canadian dollar strength. Just last week, the double whammy of the BoC governor reopening the Canadian rate cut debate and the new Fed Chairman appearing to have moved forward the date of a rate hike rejuvenated USDCAD bulls who drove the currency pair to 5 years highs. The USDCAD remained at elevated into last week’s close even as AUDUSD and NZDUSD were rallying.

What has changed

What has changed this week? In Canada-nothing. In fact, there wasn’t even any domestic economic data released yet the loonie is strutting like a peacock in mating season. The reasons for the corrective activity may include:

1) Positioning- Long USDCAD positions are at high levels and momentum has waned

2) Commodity Bloc Flavour- AUDUSD and NZDUSD , both of which were heavily sold, have bounced from their lows and retraced through important resistance levels on an improving economic outlook suggesting that perhaps the loonie would follow suit.

3) Reassessment of the BoC’s policy stance. Perhaps the governors remarks were taken out of context and the important phrase was "neutral is literally neutral, greatly reducing the risk of a rate cut.

4) Month-end, quarter end and pre fixing flows which may have been behind some of the USDCAD selling.

5) Position adjustment ahead of next week’s nonfarm payrolls report.

USDCAD technical outlook

The long term USDCAD technicals are bullish while trading above 1.0580 and the shorter term technicals are bullish while above 1.0980. A break of 1.0980 would get messy and lead to further weakness to 1.0910 and then 1.0840. Intraday, USDCAD is in a modest uptrend above 1.1020 which began at 1.1000. It is testing minor resistance at 1.1050 but needs to break above 1.1080 to negate the short term downtrend from 1.1240.

Chart: USDCAD Daily with intact uptrend’s displayed

It’s a correction-not trend change

Since there doesn’t appear to be one specific catalyst behind the USDCAD plunge I believe that this week’s move is merely corrective (albeit, larger than the recent moves) and unlikely to be sustained. The BoC governor was pretty clear in his speech this week that Canadian economic growth would be slow stating that " we have been in a recovery since 2009, yet economic growth still pales compared to pre-crisis years" Contrast this with expectations for a series of strong US data releases including nonfarm payrolls (forecast 190,000) and the prospect of higher US rates, sooner rather than later. The long term USDCAD uptrend remains intact, guarded by numerous support levels.

Loonieviews March 28, 2014


LOONIEVIEWS

USDCAD Open 1.1012-17 Overnight Range 1.1004-1.1030

The USDCAD edged lower in overnight trading despite AUDUSD and NZDUSD being fairly active in Asia. EURUSD was offered on soft Spanish CPI data which elevates concerns over next week’s ECB meeting. The March Reuters/Michigan Consumer Confidence Index (forecast 80.8) will give the US dollar a lift if it beats forecasts. This has been a relatively volatile week for the G-7 currencies, particularly AUD, NZD and CAD suggesting the recent gains may get consolidated ahead of the weekend.

The Intraday USDCAD technicals are bearish while trading below 1.1040, looking for a break of support in the 1.0990-1.1000 area to extend losses to 1.0940. A move above 1.1040 suggests a return to 1.1080.

Today’s Range 1.0990-1.1040

Loonieviews March 27, 2014


LOONIEVIEWS

USDCAD Open 1.1086-91 Overnight Range 1.1079-1.1104

The USDCAD held on to yesterday’s gains while remaining on the sidelines in what was described as a "lively" overnight session. Kiwi caught a bid on better than expected trade data. USDJPY was on a month end, quarter end and year end roller coaster ride. GBP rallied on strong Retail Sales while the EUR was offered on rate cut concerns not unlike what occurred last month ahead of the ECB meeting. US GDP, jobless claims and Pending Home sales may inject additional volatility into FX trading today.

The Intraday USDCAD technicals are bearish while trading below 1.1130 looking to extend losses on a break of the 1.1040-60 support zone. A move back above 1.1130 suggests further gains to 1.1170. For today, USD support is at 1.1080, 1.1060 and 1.1040.. Resistance is at 1.1120, 1.1140 and 1.1180

And in other news, the acting Prime Minister of the Ukraine is ecstatic on the IMF’s decision to provide the Ukraine with $27 billion in emergency funding. Prime Minister Yatseniuk told parliament-"Finally, I can afford to live in the style that my predecessor was accustomed to. Get me a Veyron"

Today’s Range 1.1060-1.1120

Loonieviews Midweek Update


Durable Goods not so durable but AUDUSD rally could be

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Michael O’Neill

Filed in Loonie Views

Canada, Just now 26 March 2014 at 16:26 GMT+0

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· Durable Goods report not US dollar supportive.

· AUDUSD on center stage

· Balance risks for loonie

Today’s Durable Goods report may have been the marquee release for US data this week but AUDUSD is the star of the show. Durable goods rose 2.2 percent m/m, handily beating the 1.0 percent consensus forecast. As usual the devil is in the details and this report’s details were mixed. The drop in the non-defense capital goods orders excluding aircraft component, dropped 1.3 percent taking a little of the bloom off the rose. Nevertheless, the US dollar has managed a slight bid.

The paucity of prime data releases this week, a steep reduction in USDJPY trading activity due to the March 31 Japanese year end and the variety of headlines carpet bombing the markets has FX majors trading sideways within the recent ranges. All except for the Australian dollar. Glenn Stevens, the governor of the Reserve Bank of Australia (RBA) provided a fairly upbeat economic outlook in a speech in Hong Kong today suggesting that further growth in the domestic housing market is helping to offset the effects of reduced mining capital expenditures. He still maintains that the Australian dollar is too high but he dialed down the rhetoric to such an extent FX traders rushed to buy AUDUSD.

Feast or Famine

Last week was chock full of market moving data, central bank policy announcements and geo-political risks. Traders feasted on remarks from the governor of the Bank of Canada (BoC), Janet Yellen’s first press conference as Chair of the Federal Open Market Committee (FOMC), the minutes from the Bank of England (BoE) as well as bountiful top tier economic data releases. A headline from a Q & A session with the BoC governor led to a sharp spike higher in USDCAD. Similarly, Janet Yellen’s dot plot and quantification of "considerable time" being six months put the US dollar in demand across the board. In both cases, the headlines were misleading and by the end of the week, the US dollar had started to pare back some of its gains.

This week, for the most part, has been a famine. The G-8 became the G-7 meaning that Russia paid a very small price for Crimea. The only thing missing is for President Obama to proclaim "Peace in our time". USDJPY trading seems to be closed for the Japanese year end on March 31 and Mario Draghi’s apparent attempts to talk down the EUR ahead of the European Central Bank meeting next week are being ignored.

AUDUSD in the spotlight

The Australian dollar was able to grab the spotlight as it was the only G-10 currency to show signs of direction. The break of the 200 day moving average at 0.9140 and the RBA’s tacit capitulation of verbal intervention have 0.9530 in the cross hairs. The 200 day moving average should now revert to support.

Chart: AUDUSD daily with 200 day moving average

Source: Saxo Bank

Balanced risks in USDCAD in the short term

USDCAD has been in a strong uptrend since the beginning of January but has struggled to make headway above the 1.1240-60 area resistance zone. As previously stated, various positioning models including the IMM Commitment of Traders report indicates that short Canadian dollar positions are at very high levels. If accurate, that implies a lack of new buyers limiting further US dollar gains. The recent weak Canadian economic data releases may be more a factor of this year’s extreme winter season rather than an indication of a slowing economy. If so, then the upcoming data should surpass expectations and provide the loonie with some support. Last week’s USDCAD rally was a result of the headlines taking Mr. Poloz’s interest rate comment out of context. The fact remains that the Bank of Canada believes that the existing "Neutral" policy stance adequately reflects the existing economic risks as determined by the BoC. However, in the longer term there is still a good risk that USDCAD punches through resistance and checks out 1.1550 due to diverging interest rate paths. The Bank of Canada is neutral but Poloz’s speech was fairly dovish. On the other hand, the FOMC chairwoman left the impression that US rates were heading higher, sooner than previously indicated. This divergence will limit any Canadian dollar gains and ensure that the current 1.1080-1.1260 range remains intact.

Chart USDCAD daily with uptrend line and support

Source: Saxo Bank

Loonieviews March 26, 2014


LOONIEVIEWS

USDCAD Open 1.1143-48 Overnight Range 1.1126-67

The USDCAD dropped through the first line of support at 1.1140 and flirted with the 2nd level at 1.1120 as a soaring AUDUSD elevated the so-called "commodity currency" bloc. The catalyst was the break of the 200 day moving average in AUDUSD at 0.9140 combined with a seemingly hawkish stance by the RBA governor who also avoided attempting to talk down the currency. Elsewhere, the US dollar traded erratically, fueled by headlines but stayed within recent ranges. Today’s US February Durable Goods report is forecast to rise 1% although Feb. weather wasn’t much different from Jan.

The Intraday USDCAD technicals are bearish looking for a break below 1.1120 to extend losses to the 1.1040-60 zone. A move back above 1.1170 suggests further gains to 1.1210. For today, USD support is at 1.1120, 1.1105 and 1.1080. Resistance is at 1.1170, 1.1190 and 1.1210.

Today’s Range 1.1105-70

Loonieviews March 25, 2014


LOONIEVIEWS

USDCAD Open 1.1208-12 Overnight Range 1.1.1192-1.1208

The USDCAD traded narrowly in a rather thin, choppy overnight session. USDJPY looks to have stalled ahead of Japanese year end. The German Ifo data was mixed but largely ignored while a ton of UK data did the same for sterling. The US data out today ( Consumer Conf., Case-Shiller Home Prices, New Home Sales) may support the US recovery story and give the US dollar a bid but speeches from Draghi, Lockhart and Plosser will be watched closely. G-7 sanctions on Russia and Russia’s reaction are also putting a damper on trading volumes

The USDCAD technical are bearish while trading below 1.1230 in the context of a rising uptrend which has stalled within a 1.1140-1.1270 consolidation range. For today, USD support is at 1.1190, 1.1170 and 1.1140. Resistance is at 1.1210, 1.1230 and 1.1270

Today’s Range 1.1180-1.1230