Loonieviews 14July14


The three amigos: Mark Carney, Janet Yellen and Humphrey-Hawkins

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • Awaiting the three amigos
  • Humphrey-Hawkins unlikely to inspire traders
  • BoC statement could be a market mover

Monday has heralded a new world order. Germany is on top of the heap; FIFA World Cup champions. Argentinians are crying for themselves Not only did they lose the game but an unruly mob of disgruntled "La Albiceleste" fans came out second best against heavily armed Brazilian paramilitary riot police. Sore losers were truly sore losers after naked skin met riot baton, steel toe boots and tear gas.

Asian FX markets started slowly and then mostly idled ahead of the results from the Bank of Japan meetings today and tomorrow. European FX activity was understated with Germany likely still celebrating the victory in Brazil and France is on holiday for Bastille Day. A Mario Draghi speech at the end of the European day and tomorrow’s Humphrey-Hawkins testimony by Janet Yellen suggests traders may stick close to home.

Mark Carney, Janet Yellen and Humphrey-Hawkins

In 1986, the Three Amigos were Steve Martin, Chevy Chase and Martin Short. The 2014 remake of the film stars two central bankers and a bunch of politicians. Mark Carney, governor of the Bank of England (BoE) will share billing with Federal Reserve chairwoman, Janet Yellen on Tuesday. Mr. Carney lit a fire under sterling about a month ago when he pronounced UK rates could rise" sooner than the market thought".

Central bankers are just not as funny as Steve, Chevy and Martin.

GBPUSD rallied above levels not seen since 2009 which may have precipitated Mr. Carney reopening his mouth to change feet. Last week the BoE admitted that rate hikes weren’t imminent. Traders are hoping that tomorrow’s speech before the Treasury Select Committee will shed more light on the timing of a UK interest rate increase. Disappointment may see GBPUSD rapidly retreat from its current lofty levels and probe support at 1.7000.

Traders will be watching Janet Yellen’s Humphrey-Hawkins testimony, well, like a hawk. Did the latest US employment figures have any impact on her well-know dovish stance? Is six months back to being an extended period of time or is six months merely half a year? The US dollar may drift higher ahead of her remarks on anticipation (hopes) that her comments may be construed as hawkish, which would be a mistake. It is the summer and tapering is still in progress until October. Any shift in the Federal Open Market Committee’s stance may not be telegraphed until September.

Key US Data releases

Tuesday: June retail sales (Forecast: 0.6 percent, ex-autos, 0.6 percent, month over month.) This data is poised for a bit of a jump and supports the outlook for an improving US economy.
Tuesday: Janet Yellen’s Humphrey-Hawkins Testimony
Wednesday: June industrial production and capacity utilization (Forecast indust. prod. 0.3 percent, month over month, cap. util. 79.3 percent)
Thursday: June Housing Starts (Forecast 1.02 million, Permits 1.04 million)
Friday Reuters/Michigan Consumer Confidence (Forecast 83.2)

Key Canadian Data releases

Tuesday: Canadian manufacturing shipments: Forecast (1.5 percent)
Tuesday: Bank of Canada interest rate decision and statement
Friday: June consumer price index (Forecast 2.4 percent, Core 1.7 percent, year over year) Rising gas prices could have edged inflation higher for the month.

BoC walking a very fine line

On Wednesday the Bank of Canada (BoC) releases its interest rate decision and policy statement. The rate is unanimously predicted to remain unchanged at 1.00 percent although this month’s statement could be a market mover. The BoC governor, Stephen Poloz is thought to be a fan of a weaker Canadian dollar. Earlier in the year, he used soft inflation data to scare traders into thinking that a domestic rate cut was a clear and present danger leading to a USDCAD rally that peaked at 1.1270 at the end of March. He dismissed recent improvements in inflation as "temporary" yet the May report (released June 20) showed price increases in all major components. Mr. Poloz’s conundrum is how to acknowledge the improvement to the Canadian economy while simultaneously avoiding any possibility that the BoC statement can be viewed as hawkish to prevent a renewed Canadian dollar rally.

Changes in Canadian CPI components

Source: Statistics Canada

USDCAD technicals

The intraday USDCAD technicals are bullish following the break of resistance at 1.0670 and then again at 1.0720 looking for an extension of gains through resistance in the 1.0740-60 area to retest 1.0820. However, the short term USDCAD downtrend from 1.1270 remains intact below 1.0740, a level which is also resistance as a previous triple top prior to the 2014 USDCAD rally. Intraday, a move below 1.0720 argues for further USDCAD losses to 1.0690 and then 1.0670.

USDCAD 4 hour with intraday support noted

Source: Saxo Bank

Categories FX, Foreign Exchange, Currency, Canadian Dollar

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