Loonieviews August 13, 2014

Choppy range trading still the norm for majors

Michael O’Neill

FX Consultant / IFXA Ltd


  • Carney undermines cable
  • Stats Canada goofs – July employment report to be reissued
  • No jolt from JOLTs

By Michael O’Neill

The US Retail Sales report made hamburger meat out of short EURUSD trades. Although the report was just unchanged, EURUSD rallied from 1.3340 to 1.3410, taking out stops around 1.3370. GBPUSD was the worst-performing currency overnight. It was Carney-val time once again in the UK and this circus did not disappoint. GBPUSD leapt higher on the headline jobless rate and then, just as quickly, plunged on a softer-than-expected employment increase. Carney took the stage to emphasise, a la Janet Yellen, weak pay growth. FX traders heard "no rate increase anytime soon", and GBPUSD tested support in the 1.6725 area.

Little change in job openings

The Job Openings and Labour Turnover Survey (JOLT) was released yesterday to minimal fanfare. Despite reports that Janet Yellen views this data as an important indicator of the health of the US employment market, the FX market tends to ignore it. Perhaps, in the case of this report, for good reason. According to the Bureau of Labour Statistics, job openings in June were little changed from May. The Hires rate was little changed while the Separations rate was unchanged.

Chart: Hires and Separations

Source: Calculatedriskblog.com

Beware of Russians bearing gifts

Ukrainian authorities have not forgotten their Greek classics. A convoy of 280 Russian trucks, reportedly laden with humanitarian aid for the victims of the Ukraine uprising, will not be allowed into the country. The Russians say the trucks are loaded with everything from sleeping bags to baby food. The Ukrainians think the sleeping bags may be attached to soldiers, 280 truckloads of them. Elsewhere, tensions are rising in Iraq. The incumbent prime minister is refusing to acknowledge the appointment of his successor, raising the risk that he may try to hold power using military force. At the same time, the insurgent ISIS are making huge inroads in northern Iraq and are seemingly undeterred by US airstrikes. The Israel and Hamas Gaza ceasefire is still in effect but expires at midnight, local time in Cairo. China is still bullying its neighbours and dismissed a US proposal to refrain from "provocative actions" in the South China Sea. At the moment, FX traders seem to be ignoring the increased tensions in the area but the "risk off" button is close at hand.

Oops – StatsCan goofs – Employment report will be reissued on Friday

There has been a wide discrepancy between the Canadian employment report forecasts and the actual results all year. Last Friday’s release of the July employment report was no different. The consensus forecast was for a gain of 20,000 jobs. The reported result was a gain of a mere 200 jobs. Yesterday, in a rare move, Statistics Canada is pulling the August 8 release and re-issuing the employment report on August 15. Last Friday’s weak report led to Canadian dollar selling but the move was completely unwound by Monday, in part because traders are discounting the quality of this data series. The following are three possible scenarios for Friday’s employment data release:
1. If the job gains exceed expectations, USDCAD will test support at 1.0880 as it will reinforce the string of recent positive economic reports.
2. If the jobs report disappoints (again), USDCAD will revisit 1.0970.
3. If the report meets expectations, USDCAD will drift lower.

USDCAD outlook

The re-release of the Canadian employment data on Friday is likely to only have a short-term effect on USDCAD. Domestic data has had only a minimal impact on the Canadian dollar direction for the past three weeks, serving to slow USDCAD gains in a generally "strong dollar" environment. That is unlikely to change in the next week or so. There isn’t any Canadian data of note until Friday August 22, leaving US data and global worries to drive direction. Janet Yellen’s speech at the Jackson Hole symposium on August 29 will kick off the autumn trading session, which suggests more choppy range trading ahead. Despite this, geopolitics could spark another bout of risk aversion trading.

Chart: USDCAD 4-hour

Source: Saxo Bank

Categories FX, Foreign Exchange, Currency, Canadian Dollar

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