Loonieviews End of Week July 11, 2014


Loonie loses altitude as Canada loses jobs

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • Big buffet of data and central bank statements
  • Upcoming BoC meeting key to loonie’s fate
  • Mark Carney speech could be key for cable

The week is ending with the Canadian dollar being the worst-performing G10 currency. The flare-up of risk sentiment sparked by concerns about the health of a Portuguese bank have faded following supportive comments by the Central Bank of Portugal, allowing EURUSD to resume drifting in a boring range. Hopefully, next week will be more exciting.

The week that was

Monday started with EURUSD traders still mulling over the surprisingly strong US employment data, apparently concluding, "so what?" and returned to buying EURUSD. USDJPY followed equities lower which had been hurt both by positioning and by news of some major banks moving their Fed hike forecast forward. USDCAD rallied on weak domestic data and EURCAD demand.

Tuesday was sterling traders’ turn to cry. Weak UK data drove GBPUSD to the lows of the week. In Asia, weak equity markets continued to weigh on USDJPY which broke support at 101.60 and got yen bears all excited. Speaking of excitement, the wait for the highly anticipated Brazil-Germany World Cup semi-final in the New York afternoon and Wednesday’s release of the Federal Open Market Committee minutes gave traders a good excuse for an extra long lunch/early dinner.

Big boys don’t cry, but some sterling traders had reason to on Tuesday. Photo: iStock

Wednesday started with German fans still celebrating Germany’s move to the World Cup finals and the rest of Europe awaited the FOMC minutes. North American traders reacted to the FOMC minutes like they were news, decided that they were dovish and whacked the US dollar while US equities rallied.

Thursday was a ball of confusion. The EURUSD was sold on concern about the creditworthiness of a Portuguese bank and soft Eurozone economic data while USDJPY continued to sink on bearish technicals and lower equity prices.

The week that will be

FX markets will be dining on a veritable buffet of central bank governor speeches, interest rate decisions, policy statements and meeting minutes. And that is just the entrée portion. The dessert table will be bending under the weight of important data from the UK, USA China and New Zealand.

European Central Bank chief Mario Draghi’s speech on Monday may compensate traders for an absence of data on a day when the French market is closed for Bastille Day. Tuesday should be busy. The Reserve Bank of Australia’s (RBA) policy meeting minutes are released followed by the Bank of Japan’s (BoJ) policy statement and press conference.

Contrasting opinions about the Japanese stimulus program were made by the BoJ governor and a prime minister adviser earlier this week, which may increase the attention paid to Mr. Kuroda’s press conference.

The UK unleashes a wave of data including CPI and PPI just ahead of Mark Carney’s speech. US retail sales will be the focus of the New York session. Wednesday is another big day with a rash of Chinese data ahead of the UK employment report and the Bank of Canada interest rate decision and policy statement. The tone for FX trading on Thursday will be set by the release of the Eurozone CPI data. The week will wind up with Canadian CPI and the US Reuters/Michigan Consumer Sentiment Index. It sure looks like a week of fun in the sun.

Loonie loses altitude as Canada loses jobs

The Canadian dollar sank following a worse than expected employment report which revealed that Canada shed 9,400 jobs in June rather than the 20,000 gain expected. USDCAD spike from 1.0645-to 1.0690. The unemployment rate edged higher to 7.1 percent from 7.0 percent previously.

Chart: Change in Canadian employment

Source: TradingEconomics.com

Canadian dollar outlook

Today’s weaker than expected Canadian employment data needs to be viewed with a little perspective. The consensus forecasts have been perfect for the past 6 months—perfectly wrong. At the same time, the employment report does add another layer of uncertainty about the health of the domestic economy. This will become more evident on Wednesday with the Bank of Canada policy statement. Governor Poloz may feel a little vindicated with the employment data as he continues to be concerned about soft economic growth.

Today’s employment data may have served to shore up the already heavily reinforced USDCAD floor in the 1.0590-1.0630 area but it is unlikely important enough to drive USDCAD through key resistance in the 1.0740 area. However, 1.0740 becomes at risk if Mr. Poloz uses the weak data to take another shot at the "high" level of the Canadian dollar.

USDCAD technicals

The intraday USDCAD technicals are bullish following the break of resistance in the 1.0670-90 area and targeting 1.0740. A break of this level puts 1.08750 in play which represents the 38.2 percent Fibonacci retracement of the March to July 2014 range of 1.0620-1.0770. A drop back through support in the 1.0660-70 area would suggest further 1.0620-1.0740 consolidation.

Chart: USDCAD daily with Fibonacci

Source: Saxo Bank

Categories FX, Foreign Exchange, Currency, Canadian Dollar

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