US dollar bid on positive outlook
FX Consultant / IFXA Ltd
- US data keeps US dollar bid
- Loonie slips on falling oil
- ECB may disappoint
By Michael O’Neill
The US dollar gained on a better-than-expected ISM report that is keeping the US recovery story on track and supports the calls for a mid-2015 rate hike. This data follows in the footsteps of a generally US dollar-supportive Asian and European FX session. Chinese data was softer than expected and Eurozone PMI data was mixed. The Federal Open Market Committee (FOMC) surprised markets, the Bank of Japan stunned markets so what is the European Central Bank ECB) planning? The ECB has a history of erring on the side of caution and having just started a covered bond buying programme it may want to see how that programme is working before announcing additional initiatives.
USDX points to higher US dollar
The US dollar is bid and the US dollar index (USDX) suggests further gains ahead. The break above resistance at 86.20 and again at 87.00 suggests further gains to the 2010 peak at 89.27. However, the steepness of the moves warns of a possible 86.80-87.50 consolidation period.
Source: Saxo Bank
The Canadian dollar is under pressure stemming from weak data and falling oil prices. This morning’s dip in WTI to 79.83/bbl puts the spotlight on a Loonie that is already reeling from widespread expectations that domestic economic growth will lag behind that of the US, as will interest rate hikes.
However, it is not all doom and gloom as demand for CADJPY and sales of EURCAD mitigate USDCAD demand. The Bank of Canada governor, Stephen Poloz is to give a speech today although the topic of the Legacy of the Financial Crisis may not be a market mover, the following press conference could provide some Canadian dollar positives. The US employment data on Friday should maintain the upward pressure on USDCAD while the Canadian data is ignored.
The short-term USDCAD technicals are bullish while trading above 1.1260, with the break above the 1.1290-1.1310 resistance area putting the October peak of 1.13384 in play. A break of these levels will extend gains to 1.1430 with 1.1550 on the cards. A move below 1.1260 would extend losses to the 1.1190-1.1220 area and suggest consolidation in a 1.1220-1.1380 range.
Source: Saxo Bank
Key US data releases:
Tuesday: September Trade Balance (Forecast, $40.4 billion deficit). The deficit is expected to be close to unchanged but a material improvement will support the US dollar.
Wednesday: October ISM Non-manufacturing PMI (Forecast 58.0). An upside surprise will help support the US dollar due to an economic recovery theme.
Friday: Nonfarm Payrolls (Forecast 228,000, unemployment rate 5.9%). The risk is for a small upside surprise due to improving domestic demand.
Key Canadian data releases
Tuesday: September Merchandise Trade (Forecast flat). The Canadian trade data should be hovering around flat although another small deficit is possible on lower energy prices. Prior month revisions could provide some support to the Canadian dollar.
Thursday: October Ivey Purchasing Managers Index (Forecast 56.0). This notoriously volatile series tends to have the biggest impact when the data supports the prevailing view.
Friday: Canadian Employment (Forecast negative 5,000, Unemployment Rate 6.8%). This data is expected to be weak in keeping with this year’s, up-down, up-down pattern. Last month’s outsized 74,000 gain failed to provide much in the way of support for the Loonie. However, with the prevailing negative sentiment surrounding the Canadian dollar, a week print is likely to fuel USDCAD buying.