Data-filled week could spark FX market volatility
FX Consultant / IFXA Ltd
- Canadian GDP disappoints
- Heavy data week will keep FX markets interested
- Six months into the year, Groundhog day
The month is ending on a sour note for the Canadian dollar with news that GDP missed forecasts, rising a mere 0.1 percent in April vs. forecasts for a 0.2 percent gain (month over month). However, USDCAD only advanced marginally which could be due to month-end maneuverings and Canadian dollar cross activity.
Tomorrow’s Canada Day holiday has likely already reduced domestic trading interest while Thursday’s European Central Bank meeting and US nonfarm payrolls report shift market focus back to World Cup pools.
FX markets have a lot to chew on this week, even without North America. The Reserve Bank of Australia is on tap Tuesday. AUDUSD may have already dipped in anticipation of the governor complaining about the "high level" of the currency, leaving short AUDUSD traders vulnerable to disappointment.
USDJPY has dipped further in part due to month-end rebalancing but the pending Tankan report could also be a factor. The reality is that there is enough important data from various sources to ensure wide swings within the confines of recent trading ranges for all the G7 currency pairs.
Tuesday is a public holiday in Canada, but it’s work as usual elsewhere
Groundhog day semi-annually
Six months ago the new year dawned with optimism as fresh as the Polar Vortex gripping most of the Northern Hemisphere. The European Central Bank’s (ECB) deflation fears and the post-Bernanke US Federal Reserve were the two major concerns overhanging FX markets.
Traders widely expected that the ECB would combat deflation with interest rate cuts and other stimulus measures. That action would drive the EURUSD from 1.3650 (where it was sitting on January 5) to at least 1.3000. Six months later, after the ECB introduced negative interest rates and a stimulus package at the beginning of June, EURUSD is still sitting at 1.3650 and traders are still looking for 1.3000
Across the Atlantic, the changing of the guard at the Federal Reserve had markets fretting about a more "dovish" Federal Open Market Committee (FOMC). The onset of tapering in December refocused markets on interest rate hikes and when they will occur.
The new Fed chairman, Janet Yellen, has talked at length about the Fed’s dual mandate of managing inflation and jobs growth. As the year progressed the quantification of the employment portion of the mandate became hazier and hazier. Despite four consecutive months of strong US employment gains, the "full employment" picture is still blurry. The interest rate question in January remains unanswered at the end of June.
Key US data releases
Tuesday: June ISM Manufacturing PMI (Forecast 55.8) There is an upside risk to this data based on other surveys which should support the US dollar.
Wednesday: June ADP Employment (Forecast 205,000) and Challenger Job Cuts-These reports usually garner attention when they greatly deviate from projections and will be monitored as a harbinger for nonfarm payrolls.
Wednesday: Federal Reserve chair Yellen’s speech on Financial Stability at 16:00 GMT.
Thursday: Nonfarm payrolls (Forecast 213,000). It doesn’t appear (yet, anyway) that the market is expecting any great surprises for this month’s roll of the dice although Wednesday’s employment reports could change that. Perhaps after four months of 200,000-plus job gains a disappointing number is due.
Thursday: May trade balance (Forecast deficit USD 45.20 billion) A consensus print would be US dollar supportive especially if combined with a strong payrolls report.
Key Canadian data releases
It is another light week for Canadian data
Wednesday May international trade (Forecast deficit CAD 600 million).l The Canadian balance is flirting between deficit and surplus lately but the data will have minimal impact due to the US employment report.