The Canadian loonie is a flightless bird 28Nov14


The Canadian loonie is a flightless bird

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

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By Michael O’Neill

With November coming to an end, most Americans are probably grateful for the persistent strength in the US dollar as they finish their Black Friday shopping.

Elsewhere, EURUSD traders shrugged off today’s Consumer Price Index report as the figures were just as expected. Canadian GDP data blew away forecasts with a 2.8% quarter-over-quarter result for October (analysts were expecting 2.1%). Unfortunately, loonie traders weren’t blown away with the result; USDCAD declined to 1.1370 from 1.1390 and then quickly reversed itself. Essentially, GDP is in the past. Oil price declines are the future here, and USDCAD is bid.

Try as it might, the Canadian loon could not take flight today. Photo: iStock

Black Friday, black gold

Opec has eagerly bought into the American tradition of Black Friday sales, even starting them on Thanksgiving Day (just like a few aggressive US retailers). The cartel’s decision to maintain its 30 million barrels per day production target despite a “black gold” glut drove WTI down nearly 7% on Thursday, gutting the loonie in the process.

The break of support in the $73.20/bbl area clears the road for a straight line drop to the next support level at $62.80, a level not seen since the end of July 2010.

US oil continuous daily five-year with next support level shown

Source: Saxo Bank


If you can’t beat ’em, bankrupt ’em

A large reason for the current glut of oil can be traced directly to the USA and the rise of shale production. Last year, UBS issued a report suggesting that the American shale boom is for real and that the USA would be the world’s largest oil producer by 2020.

Did you think the Saudi’s missed this one? Every barrel of oil produced by America means one less barrel for the Saudis to sell. That means fewer palaces and private 747s for the royal family and friends.

Saudi oil costs next to nothing to produce (one guess, all-in and including transportation, gives $7.00/bbl) while American shale production costs about $85/bbl, including transportation (source: SNBCHF.com). Saudi Arabia can live with low oil prices for a lot longer than can American (or Canadian) producers.

Saudi Arabia: making it look easy since 1938. Photo: iStock

A Bloomberg story on Tuesday reminded the markets that, when it comes to protecting their market share, Saudi Arabia can be ruthless. In 1986, the Saudis orchestrated a 67% drop in the price of crude which decimated the domestic US oil industry. Déjà vu?

Crude oil price history: January 1970 to November 2014

Source: Macrotrends.net

Loonie smeared by oil

The Loonie has been knocked out of its two-week comfort zone of 1.1220-1.1390 on the rising risk of much lower oil prices… and the damage is just beginning. Recent Canadian economic releases have provided support to the Canadian dollar on evidence of a broad Canadian economic recovery. Today’s GDP data continued that theme. Yesterday, the Current Account deficit narrowed to CAD $8.4 billion vs. expectations of a CAD $11.10 billion deficit, another bullish surprise following in the footsteps of strong CPI, retail sales and employment reports.

Unfortunately, the WTI/CAD correlation, absent for most of November, appears to have re-established itself. Justified or not, falling oil prices are an uppercut to the beak and the loonie has been stunned.

USDCAD technical outlook

The intraday and short term USDCAD technicals are bullish. The short term rising uptrend from the July 2014 low remains intact while trading above 1.1120 on a daily chart, with the break above 1.1340 pointing to a revisit of 1.1460.

The break of the 50% Fibonacci retracement level at 1.1230 (representing the March 2009 peak of 1.3025 and the July 2011 low of 0.9430) targets further gains to 1.1650, the 61.8% level. However, the Fibonacci levels are very long term targets and merely a guide.

Yesterday’s break of 1.1340 negated the USDCAD downtrend from its November peak while the move above 1.1390 resistance warns of the risk for a new 2014 peak. Resistance is at 1.1430, 1.1460 and 1.1520.

USDCAD daily with Fibonacci levels

Source: Saxo Bank

The week that was

The first part of this week was, as Lisa Simpson would say, “meh”. The Japanese Labour Thanksgiving Day holiday on Monday set the tone, providing traders with an excuse for inactivity while Thursday’s Opec meeting in Vienna provided the risk of drama.

Tuesday saw a little more action. An AUDUSD rally on Monday (stemming from a rate cut in China) hit the wall when stories emerged that the Chinese rate move was more glitter than gold. This was followed by verbal intervention by the Reserve Bank of Australia, giving AUD a good one-two punch. US GDP data beat expectations but pre-Thanksgiving position adjustments kept pressure on the US dollar.

The RBA’s position on a currency surge is essentially "not for all the tea,

or rate changes, in China". Photo: iStock

Wednesday’s major US data dump failed to ignite any fireworks. The economic reports were mixed while a nasty storm on the East Coast ahead of the travel-intensive Thanksgiving holiday likely distracted American traders. Opec’s Vienna meeting on Thursday attracted a lot of attention and worried commodity currency traders.

Thursday saw more than Thanksgiving turkeys get carved up when oil prices plunged after Opec, led by Saudi Arabia, declined to cut production.

The week that will be

The countdown to Christmas begins. For many American banks, it is the last month of the fiscal year — a time to protect profits and bonuses and definitely not a time to strap on any risk. Despite that, risk will be hard to avoid.

The European Central Bank interest rate decision and press conference on Thursday could provide plenty of fireworks while the RBA meeting on Tuesday and the BoC meeting on Wednesday will serve as the warm-up acts.

The Bank of England meeting will, of course, be overshadowed by the ECB proceedings and if that wasn’t enough, there are plenty of regional data as well as the US nonfarm payrolls report to keep markets active and traders on their toes.

Monday starts with China Manufacturing Purchasing Managers Index data providing trading ammunition for AUDUSD and NZDUSD. That is followed by more PMI data from the Eurozone, the UK and the US.

The RBA will be the center of attention at the start of Tuesday trading, but the excitement fades rapidly afterwards as there isn’t anything to look forward to in Europe or North America.

Nothing to see here. Photo: Fuse

Wednesday looks more promising as Australia and Eurozone GDP data plus Eurozone Retail Sales are set to be released. The UK vies for attention with the Treasury’s Autumn Forecast Statement. The BoC interest rate decision and statement will drive short term USDCAD trading and the US ADP employment report. The EIA crude oil stock change report — which is usually ignored — may get a closer look in light of the recent Opec news.

Thursday’s session will be guided by the ECB statement and press conference as well as any new information from the BoE. When the dust settles from those events, the BoC takes its turn in the spotlight, although most traders will be monitoring their positions ahead of Friday’s US payrolls report.

Friday will have the usual flurry of post-payrolls action and then quickly settle back to digesting this week’s events while planning for the weekend.

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Loonie vulnerable if Opec upsets oil cart 26Nov14


Loonie vulnerable if OPEC upsets oil cart

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

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By Michael O’Neill

Today’s US data dump met with mixed reviews and a muted FX reaction. The weather may be partially to blame. Winter storm Cato (not the Green Hornet’s side-kick) could cause travel nightmares across the US east coast, sending the few traders in their New York offices home earlier than planned. US core PCE was modestly higher than expected but the impact was negated by an equally modest rise in jobless claims.

Upsetting the oil cart

It has been a long time since Opec meetings have attracted this much attention. This is largely because it has been a long time since the world has been awash in oil, or at least oil production. Oil traders and petro-currency traders are eagerly awaiting Thursday’s announcement. Will it announce production cuts and, if so, will the cuts be sufficient to put a floor under oil prices?
Reuters reported today that Saudi Arabia didn’t appear to be a big fan of major oil cuts while Russia refused to cooperate in any production cuts. Another major player, not at the table, is the US. Shale production of oil has contributed to the glut but fixing prices, of any kind, is a tad illegal in America.

Loonie and oil — an ‘on-again, off-again’ romance

The Loonie and WTI oil prices have had an “on-again, off-again” romance this year. After being together forever throughout October it appears that the bloom is off the rose. USDCAD/WTI have become estranged.

The Canadian dollar has eked out gains even as WTI plumbs new depths that may prove short- lived, again. A TD Bank report (Of Oil and Output) on the impact of falling oil prices in the Canadian economy concludes that “falling oil prices put modest downward pressure on Canadian output prices and the Canadian dollar”. The modest decline in the Canadian dollar hasn’t occurred for most of November, even as WTI prices made new lows, suggesting that the Loonie may take a turn for the worst.Chart WTI and USDCAD – note lack of correlation in November

Source: Saxo Bank


OECD sees early Canada rate hike

The Organisation for Economic Co-operation and Development (OECD) is forecasting that the Bank of Canada (BoC) will hike rates around mid-2015. This is about six months sooner than most domestic economists have predicted and probably a major factor in why FX traders ignored the report, which was released on Tuesday. The National Post debunked the OECD outlook, pointing out that Stephen Poloz, BoC governor, is on record stating that the bank would lag behind Fed rate hikes.

The OECD expects rising inflation to be the key driver behind a rate hike while the Bank of Canada (BoC) believes recent inflation pressures are temporary.

OECD Forecast BoC Forecast
GDP 2.6% 2.4%
Unemployment Rate 6.8% 6.3% Fiscal Balance negative 2.9% negative 1.4% Headline Inflation 1.9% 1.9%

Chart: OECD-Canada Economic comparisons (OECD Blue line, Canada Red line)

Source: Organisation for Economic Co-operation and Development

USDCAD Outlook

The Canadian dollar has been relatively stable over the past month and is currently the best performing G10 currency against the US dollar. It is a rather impressive performance considering that oil prices declined steadily during this period. Key domestic data releases have been surprisingly strong. The list includes another blockbuster employment report and a large decline in the unemployment rate. Inflation continues to climb, posting a 2.4% year-over-year gain in October and Retail Sales were surprisingly robust. Taken together, the data paints a picture of the Canadian economic recovery gathering momentum in tandem with that of its neighbour to the south. A better-than-expected GDP report on Friday would support the recovery story.

However, the Bank of Canada’s view is a tad less rosy. The bank modestly downgraded its growth forecasts for 2015 and 2016. It remains concerned with an export sector that is less “robust” than in previous cycles, the slack in the labour market and the output gap. The BoC governor stated in his opening remarks to the House of Commons Standing Committee on Finance that “the economy has considerable excess capacity and that continued monetary stimulus is needed to close the gap”.

The Canadian dollar continues to be pressured due to concerns surrounding soft global commodity prices, an economic slowdown in China and the prospect of higher US rates sooner rather than later. At the same time, the possibility of renewed monetary stimulus by the European Central Bank (ECB) and the Bank of Japan (BoJ) has created a demand for the stable, higher yielding Canadian dollar. Demand for CAD against EUR, JPY and, to a lesser extent, GBP has offset general US dollar strength.

USDCAD technicals

USDCAD remains in a steady, strong uptrend on the weekly chart from the September 2012 low of 0.9640, which comes into play at 1.0860. Currently, it is consolidating the November break above 1.1240 that led to the 2014 high of 1.1460. The daily chart shows a short-term descending channel bound by 1.1220 on the bottom and 1.1320 on the top. A move above 1.1320 suggests a retest of 1.1460 is on the cards.

The intraday technical picture is murky. USDCAD has been retreating in a choppy manner for the past month as evidenced by a series of lower highs but could not break below support at 1.1220, other than once for a very short-lived blip.

Chart: USDCAD daily

Source: Saxo Bank

Loonie drifts while AUD and Kiwi sink 25Nov14


LOONIEVIEWS 25Nov14

Loonie drifts while AUD and Kiwi sink

USDCAD Open 1.1285-90 Overnight Range 1.1281-1.1314

AUDUSD and NZDUSD shared center stage overnight while the Loonie looked on nervously from the wings. Kiwi sank on softer than expected inflation data while verbal intervention drove Aussie lower. USDCAD firmed in sympathy. Canada releases September Retail Sales this morning. A better than expected print (Forecast 0.5%, ex-autos0.4% m/m) will boost the Loonie and bode well for a stronger GDP print on Friday. The Canadian data will be competing for attention with US GDP and Consumer Confidence.

USDCAD technical outlook

The short term USDCAD technicals are bearish. USDCAD is in a gently sloping downtrend from the November peak of 1.1464 which is currently bound by 1.1340 on the top and 1.1205 on the bottom. Intraday, USDCAD needs to break below 1.1270 to extend losses toward the bottom while a move above 1.1320 puts the top in play,

Today’s Range: 1.1270-1.1320

Slow start to short but busy week Loonieviews 24Nov14


Slow start to short but busy week

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

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By Michael O’Neill

Tokyo traders had a day off and the week has started slowly. The US dollar is mixed. The big dollar squeezed out gains against JPY and AUD while retreating against EUR and GBP. The week should be entertaining due to some major data risks ahead including Eurozone CPI, Canada and US GDP, with an OPEC meeting thrown in for good measure. The US Thanksgiving holiday will also drain liquidity, risking increased volatility.

People are strange and FX markets are as well

On Friday, no one wanted EURUSD in light of Mario Draghi’s remarks alluding to expanding the European Central Bank stimulus programme. It took the entire weekend for traders to seemingly conclude that Draghi didn’t really say anything that he had not already said before, and EURUSD has recouped some of its losses. It has only been about 10 weeks since the ECB announced negative rates for bank deposits on “too low inflation” concerns. Perhaps the rate cuts need more time to generate results. However, the risk of additional ECB stimulus action will rise with worse- -than-expected Eurozone CPI print on Friday.

More than 600 Kmart workers have signed a petition to address staff
working hours over Thanksgiving. Photo: Getty

Turkey, and a side of OPEC ahead

Americans will be gorging on turkey dinners with all the trimmings on Thursday unless they work at K-Mart. Those employees have to start work at 6:00 am or lose their jobs. The K-Mart employees won’t be the only people working though, as OPEC is meeting in Vienna. The issue is whether or not the cartel will agree to production cuts. A Bloomberg story says some commodity fund managers are warning of $60/bbl oil prices if cuts are not imposed. A member of the Kuwait Supreme Energy Council said on Sunday that he did not think that OPEC would cut production as all the members want to keep their market share. That doesn’t bode well for the Loonie. WTI is in a downtrend below $79.80 and recent moves below $75.00/bbl have led to USDCAD gains. The OPEC announcement is due on Thursday and with the US on holiday, the lack of liquidity could exaggerate a move.

Beware US data dump disappointment

There is a ton of data being dumped on Wednesday including Durable Goods, Personal Income and Expenditures, Chicago PMI, Jobless Claims and Reuters/Michigan Consumer Confidence to name a few. Individually, each release has been known to “move markets” but this time, not so likely. Wednesday is also one of the heaviest, if not the heaviest, travel day in the year for Americans. Traders will all be busy checking flight times, traffic and weather and ignoring the data prior to calling it a day around 16:00-17:00 GMT.

US dollar index says full steam ahead

The USDX rally since August remains intact while trading above 86.60, a level that is being guarded by a double bottom at 87.23. On Friday, the USDX broke through a triple top in the 88.30-35 area suggesting further upside toward 89.15. A move through support at 88.25 would extend to 88.05 and then 87.50.

Chart: Daily USDX with uptrend and target

Source: Saxo Bank

Key Canadian data releases

Tuesday: September Retail Sales (Forecast 0.5%, ex-autos 0.4%; month-over-month)

Friday: Q3 GDP (Forecast 0.4%, month-over-month or 2.1% annualised)

Key US data releases

Tuesday: Conference Board Consumer Confidence (Forecast, 96.0)

Tuesday: Q3 GDP (Forecast 3.3%)

Wednesday: October Durable Goods (Forecast negative 0.7%, ex-transportation 0.3%)

Wednesday Q3 Personal Consumption-Expenditure

Draghi sings and Loonie takes wings 21Nov14


Draghi sings and Loonie takes wings

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

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By Michael O’Neill

The FX markets got a nudge from China’s rate hike announcement and a kick from Mario Draghi’s speech while surprisingly strong inflation data in Canada stomped USDCAD through the floor. All in all, a lively end to what could be a much quieter week ahead.

Whole lotta dove

Mario Draghi may have been channelling Led Zeppelin in today’s speech. His remarks expressing concern that the “economic situation in the euro area remains difficult” and that “the inflation situation in the euro area has also become increasingly challenging” crushed EURUSD. His speech was widely described as doveishand in fact it was a “Whole Lotta Dove”

Led Zeppelin’s influence continues and in the most likely quarters. Photo: Ben A Pruchnie

What was most surprising about Draghi’s remarks was the reaction to them. EURUSD reacted as if Draghi being concerned about persistently low inflation was news. Additional Eurozone stimulus measures have been talked about ever since he introduced negative interest rates and EURUSD adequately reflects that risk.

All Draghi said was that if inflation doesn’t pick up soon, the ECB would take further measures, something he has been saying for months. That also implies an elevated importance for next Friday’s Eurozone CPI data.

EURUSD has struggled to extend losses below the 1.2365-1.2400 area, in part due to the reportedly extreme short EUR positions outstanding. Today’s EURUSD drop halted above 1.2400 suggesting that new lows prior to next Friday’s CPI are unlikely.

Chart: EURUSD daily 5-year

Source: Saxo Bank

Loonie climbs as inflation rises

With US Thanksgiving day fast approaching, the Loonie is flapping its wings and reminding traders that it is not a turkey. USDCAD dropped like a stone on the 2.4% year-over-year rise in CPI (forecast 2.1%) breaking major support levels in the process. The Bank of Canada may find it difficult to continue to harp on the dangers of deflation, which will provide additional Canadian dollar support. The Canadian dollar has been a popular “short” for the past six months due to a combination of a doveishly biased central bank and the belief that Canadian economic improvements would lag behind those of the US. In addition, the domestic employment situation has turned positive in the past two months after numerous up-and down-reports.

The icing on the cake was the announcement of a Federal budget surplus to go along with the trade surplus and suddenly, the ugly duckling has turned into a swan, or at least a not-so-ugly duck. Today’s news of a cut in Chinese interest rates gave commodity currencies (and the Loonie) as gold and WTI gained. However, those gains may be fleeting. A couple of major bank economists have noted that the China rate cut headlines are a tad misleading as the one-year rate increased. WTI may have bounced but as long as it trades below $80.10/bbl, the downside remains vulnerable.

Chart: Canada October CPI

Source: Statistics Canada

USDCAD technical outlook

The intraday USDCAD technicals turned bearish today on the break of support in the 1.1240-60 area, which turns the spotlight on the 55-day moving average at 1.1190 and medium-term uptrend support in the 1.1140-70 area. USDCAD support is at 1.1195, 1.1170 and 1.1140. Resistance is at 1.1230, 1.1260 and 1.1280.

Chart: USDCAD 4-hour with support areas shown

Source: Saxo Bank

The week that was

This week had all the makings for a lively FX session, and traders weren’t disappointed. Japanese politics, FOMC minutes and a doveish Mario Draghi took turns wreaking havoc on currencies.

On Monday, USDJPY was in demand on speculation of a snap election call and a delay in the sales tax hike. That helped to set the tone for a generally bullish US dollar day.

On Tuesday, the Japanese election and sales tax delay speculation became fact. USDJPY soared, sank and soared again. Meanwhile, the Reserve Bank of Australia governor turned a “non-event” speech into a market mover with a warning of a “material risk” that AUDUSD falls further.

Wednesday was pretty dull in comparison to the two previous days but that changed after the release of the FOMC minutes. EURUSD saw some choppy action while not really moving outside its short-term range. USDJPY provided the fireworks posting a new high after a roller-coaster ride.

Thursday saw a continuation of the post-FOMC market volatility while USDJPY climbed in fits and starts until New York started its day. Strong Retail Sales in the UK gave GBPUSD a lift. Decent US data reports including Home Sales and Philly Fed were ignored.

The week that will be

It is a short week for American traders with the major Thanksgiving holiday on Thursday. Friday may not be an “official” holiday but other than retail employees, many Americans take personal days on Friday to make a really long weekend. Consequently, FX trading will be extremely light in North America beginning Wednesday afternoon.

Monday is likely to be quiet to start with Japan closed for a holiday. German IFO data may provide limited excitement during the European session.

Tuesday may be interesting in Asia, with Chinese Leading Economic Index data, a BoJ governor speech and economic data from Germany (GDP) Canada (Retail Sales) and a lot of US data including GDP and Consumer confidence.

Wednesday is sure to be busy, but short, at least from a North American perspective. UK data will dominate the European session. The US sees two days’ worth of data being dumped on one day. However, the reactions are likely to be muted as most of the American traders will be eyeing the clock, hoping for an early exit.

Thursday sees key data releases from Germany and Japan but the lack of a US market will dampen trading enthusiasm.

Friday could be fairly volatile depending upon the Eurozone CPI data, especially following Draghi’s remarks this morning.

Loonie a bystander in lively overnight session 20Nov14


LOONIEVIEWS 20Nov14

USDCAD Open 1.1340-45 Overnight Range 1.1340-68

Loonie a bystander in lively overnight session

The Loonie was mostly a spectator in an active FX market that started in Asia when the HSBC China PMI missed forecasts. (Actual 50.0 vs. forecast 50.8 driving Aussie and kiwi lower. USDJPY punched through various resistance levels above 118.00, flirted with 119.00 and the quickly retreated. EURUSD was choppy, undermined by soft German Manufacturing and Services PMI while Cable caught a bid on stronger than expected Retail Sales. Today’s US CPI and Home Sales data will be the focus for the North American session.

The FOMC minutes came and went and left bulls and bears wanting. They were deemed to be doveish but that was mostly splitting hairs. The fact remains that the FOMC was unconcerned about inflation and remains on track to hike interest rates.

USDCAD technical outlook

The intraday and short term USDCAD technicals are bullish targeting a break of 1.1360 to ignite another rally and revisit of the 2014 high. Long term Fibonacci analysis suggests that 1.1660 is in the picture. Only a decisive move below the 1.1240-60 area would negate the upside pressure. For today, a break below support at 1.1320 sets up another test of 1.1280 while a move above 1.1360-70 puts 1.1410 in play.

USDCAD fundamentals

The fundamental picture for USDCAD is a lot less clear than the technical outlook. Key domestic drivers of the domestic economy including manufacturing shipments, unemployment and inflation have been steadily improving eroding a large part of the bearish Canadian dollar rationale. Canada is also the first G-7 nation since 2008 to post both a budget and trade surplus. Combined, the data implies that the US economic rebound has spilled into Canada. Naturally, there is a but, and like Kim Kardashian’s it is a big but.

The outlook for WTI oil is still negative while trading below $80.00/bbl. Additional WTI weakness through $73.00 could spark another USDCAD rally above 1.1550. The other wild card is the general perception of the FOMC intentions. The market is pricing in a rate hike further out than the Fed’s own dot-plot estimate shows it to be. Any evidence that the Fed would be raising rates sooner than expected would fuel USDCAD demand.

Today’s Range: 1.1305-1.1370

FOMC minutes – countdown to disappointment 19Nov14


FOMC minutes — countdown to disappointment

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

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The run-up to today’s FOMC minutes has been lively, with plenty of regional news providing trading ammunition. The Kiwi got whacked on another sour milk auction while the JPY sank after Bank of Japan governor Kuroda’s comments about inflation falling below 1%. Inflation was also a concern in the UK with the Bank of England minutes showing that some MPC members were concerned with rising inflation. GBPUSD caught a bid on that news. As expected, US housing data barely caused a ripple on a weaker-than-expected print, with focus clearly on the pending FOMC minutes.
Minutes may disappoint USD bears

The minutes from the Federal Open Market Committee (FOMC) meeting of October 29 are only a few hours away from being released. The FOMC statement was deemed to be hawkish and the US dollar embarked on an impressive rally. This week, some analysts are fretting that the FOMC may not have been as hawkish as the markets believed, due to persistently low inflation. They are expecting that the minutes may provide evidence of elevated inflation concerns by members of the Committee, which weren’t evident in the statement thereby causing a delay in rate hikes.

They should also prepare to be disappointed. The FOMC statement acknowledged the improvement in the labour market but reiterated that it would be appropriate to maintain the 0-1/4% target range for federal funds for a “considerable time”. A discussion about inflation shouldn’t be news, considering the FOMC’s mandate, which also suggests that the statement accurately reflects their concerns.

Selling Loonie on Keystone vote is loony.

USDCAD has climbed from 1.1290 to 1.1350 (currently) in part, due to disappointment on news that the US Senate voted against approving the Keystone XL pipeline. It is not a big deal; it was merely political grandstanding and a ploy to force President Obama to actually make a decision. This time, the pro-pipeline advocates only had 59 votes, including those of Democrats. In January, the Republicans will control the Senate and have the required 60 votes needed to put the bill on Obama’s desk.

USDCAD Outlook

The idea that the Loonie may be heading south for the winter may be premature. Just because Buffalo, NY is buried in 150 centimetres of snow and a large part of Canada and the US is in the grip of a polar vortex-like weather pattern does not mean that winter has arrived. The calendar says that it is still autumn for another 31 days.

Photo: iStock

The drop in WTI oil prices below $75.00/bbl will fuel bullish USDCAD views and limit Canadian dollar gains even though domestic economic data has steadily improved. The Canadian housing market — long considered a bubble in need of bursting — has defied naysayers. Canadian exports have greatly improved and the Federal government is on the cusp of a budget surplus. The Canadian employment landscape has taken a turn for the better and inflation seems to have found a floor. Taken all together, the domestic economic improvements have offset, to a degree, the effects of lower oil prices on the Canadian dollar, implying that the November 1.1220-1.1440 range will remain intact.

Chart WTI oil daily

Source: Saxo Bank

USDCAD technical outlook

The intraday USDCAD technicals are bullish while trading above 1.1330, needing a break of the November downtrend line from the 1.1460-65, which is currently at 1.1360, to extend gains to 1.1405 and then 1.1420. A move below 1.1330 targets a return to 1.1280 and then 1.1240.
The long-term technicals are also bullish USDCAD. The uptrend from the September 2012 low of 0.9620 is intact while trading above 1.0880. The break of 1.1260, representing the 50% Fibonacci retracement of the 2009-2011 0.9430-1.3040 range targets the 61.8% retracement level, which is 1.1660.

Chart: USDCAD hourly with support and resistance

Source: Saxo Bank

Chart: USDCAD 5 year daily with Fibonacci retracement

Source: Saxo Bank