Loonieviews Mid week July 9, 2014

Loonie awaits jobs report – Argentina awaits the Dutch

Michael O’Neill

FX Consultant / IFXA Ltd


• FX markets lethargic ahead of FOMC
• Lack of top-tier US data
• Canadian employment data may rebound

The overnight FX session was subdued although a tad less deflated than Brazil after Germany schooled their national team in the game of football during yesterday’s World Cup semi-final match. Today’s release of the Federal Open Market committee (FOMC) minutes at 18:00 GMT provided further ammunition for traders to remain sidelined. Thursday’s Bank of England decision is unlikely to make any waves but will still serve to limit GBPUSD activity.

All not so quiet on the Asian front
Asian traders appeared a little more energetic overnight. A Reuters headline reported that a key adviser to Japanese Prime Minister Abe "sees no need for more BoJ stimulus" which led to some modest USDJPY selling but the dollar has since recovered somewhat. The headline appears to contradict the previous day’s remarks by the Bank of Japan governor, Haruhiko Kuroda, who said that the BoJ "will maintain the stimulus for as long as is necessary".
Elsewhere in Asia, the Indonesian elections drew the attention of traders with long memories; on alert for signs that another "Asian Crisis" could be brewing. The 1997 crisis started in Thailand but created massive problems for South Korea and Indonesia. This time, so far so good although both presidential candidates have declared victory.

Much ado about minutes
There is much ado about this afternoon’s release of the FOMC minutes, which is probably more due to a lack of top tier US data this week than anything else. The much better-than-expected nonfarm payrolls report on Friday has traders thinking "hawkish" despite the fact that the data was released long after the FOMC meeting. There is a risk that market participants could discern a "hawkish" drift in the tone of the discussions but that may prove to be wishful thinking. If the US Federal Reserve chairman Janet Yellen and company are truly drifting towards the hawkish side of the equation the evidence won’t be found today but rather next week during Yellen’s semi-annual testimony to Congress.

Canadian employment data
The consensus forecast for Friday’s Canadian employment report is for a gain of 26,200 jobs. This is a rather bogus number since the previous five results have not even been close to the forecasts. Nevertheless, USDCAD will react on a miss, which in light of the previous five reports, is almost a "given". My guess is that the Canadian data will surprise to the upside as the data is overdue to have consecutive gains and because of the surprise strength in the US data.

Chart: Canadian Employment Change

Source: TradingEconomics.com

BoC business outlook survey (BOS) not boss
Lethargic FX trading was evident in USDCAD trading this week when a weak Ivey PMI report and an ambiguous Bank of Canada (BoC) quarterly Business Outlook Survey failed to snap USDCAD out of its recent range. The Bank of Canada described the report as offering "some encouraging signs for the economic outlook, although lingering uncertainty amid intense competition still hinders the pace of growth". In the spring report "lingering uncertainly" was reported "headwinds" leading some to conclude that this report was more "doveish". On Monday, USDCAD traders apparently agreed taking USDCAD to resistance in the 1.0680-90 area. However, a softer US dollar vs. the majors and the uncertainty ahead of Friday’s Canadian employment data helped to take the steam out of the rally.

The rockets’ red glare, bombs bursting in air
The US Independence Day celebrations may have come and gone for this year while in Ukraine, the pro-Russian rebels aren’t finding anything to celebrate about. It has been reported that the Ukraine government is stepping up anti-rebel activity to clear the insurgents from Donetsk and Lubansk. Unfortunately, this news is only pertinent to the participants as the FX and commodity markets appear to have lost interest.

ISIS crisis on ice
The Middle East remains a quagmire even though the ISIS crisis is on ice. It was only a few weeks ago that the Independent State of Syria and Iraq gained world-wide attention while increasing the popularity of some risk aversion trades. News that ISIS reportedly captured a former chemical weapons plant in Iraq yesterday barely caused a ripple. Hamas is firing rockets into Jerusalem and the Israeli Air Force is retaliating. The New York Times reports that Hamas launched as many as 40 rockets into Israel, and Israel responded by bombing around 150 targets in Gaza. Back in the day, oil prices would have soared but in this day and age when the United States has become the world’s largest oil producer, West Texas Intermediate (WTI) drifted lower.

Categories FX, Foreign Exchange, Currency, Canadian Dollar

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