Kuroda Draghi similar to Komodo dragon
FX Consultant / IFXA Ltd
- Canada employment hits, NFP misses
- US Tier 1 data void signals EURUSD consolidation
- Two-way risk back in USDCAD trading
By Michael O’Neill
The Komodo dragon, found in Indonesia, is the largest lizard on earth and a predator known for eating almost anything including deer, water buffalo and humans.
The Kuroda Draghi is a different kind of beast. It is a half-Japanese, half-Italian carnivore that feasts exclusively on bears, specifically US bears and lately its appetite has been insatiable.
The Mario Draghi half of the Kuroda Draghi didn’t just kill US bears; he skinned them and turned them into rugs. The unanimous commitment by the ECB governing council for additional stimulus measures elevates the importance of next Friday’s EU CPI release. Soft data will elevate expectations for action in December.
The question is not whether EURUSD drops farther but will it be in a straight line? Today’s somewhat disappointing US payrolls report suggests not. US NFP gained 214,000 jobs vs. forecasts for a gain of 235,000. The report is merely evidence that the seemingly endless debate on the date of the next US rate hike will continue.
The short-term EURUSD technicals are bearish but are struggling to overcome support in the 1.2350-80 area, leaving lots of room to retest 1.2500. The lack of meaningful US data next week suggests that EURUSD will consolidate in a 1.2350-1.2550 range next week.
Loonie shines with bright employment report
Canada gained 43,000 jobs in October and the unemployment rate dropped to 6.5%, a rate unseen since 2008. This follows on the heels of September’s massive 74,000 job gain, and adds another element of uncertainty to the negative Canadian dollar outlook, which was already unsettled by Tuesday’s US Republican win. The Republicans are in favour of approving the much delayed Keystone XL pipeline project, which ships Alberta oil sands crude to refineries on the Gulf Coast. With control of the House and the Senate, the GoP may be able to get this deal done.
Other good news is that Canada’s trade balance is back to a surplus, and next week, the Canadian finance minister is expected to announce that the government budget is in surplus, as well. Canada is poised to be named as the first North American trading hub for Renminbi, which is more of a feel-good story rather than a reason to buy Canadian dollars.
There are still plenty of Canadian dollar negatives. The Bank of Canada governor Stephen Poloz delivered another doveish speech that focused on the risks of too-low inflation and labour market slack. He suggested that unemployed youth work for free to build up their resume. Unemployed youth suggested, among other things, that he work for free to help him return to reality. Thursday’s Ivey PMI was soft, and low oil prices continue to undermine the Loonie.
USDCAD technical outlook
USDCAD is likely to spend the next week consolidating within a 1.1260-1.1420 range, torn between the short-term uptrend and the intraday downtrend. The intraday USDCAD technicals turned bearish today with the break of 1.1420 and 1.1370, which led to a test of support at 1.1330. A break of 1.1330 warns of further losses to 1.1260. However, the short-term uptrend from the July low of 1.0630 remains intact above 1.1120 but USDCAD needs to reclaim 1.1450 to reignite the uptrend.
Source: Saxo Bank
The week that was
There was an aura of nervous anticipation in the air on Monday, and the US dollar was in demand. During the previous week, the Bank of Japan had shocked and the Federal Open Market Committee (FOMC) had awed. USDJPY made a new high (since broken) while EURUSD stuck around 1.2500. Eurozone PMI data was mixed-to-soft and the employment portion of the US ISM gave the dollar a boost on expectations of a strong US nonfarm payrolls report.
Tuesday saw traders questioning their dollar bullish bias. USDJPY gave back a chunk of Monday’s gains on position adjustment ahead of Mr. Kuroda’s press conference on Wednesday. EURUSD caught a bit of a bid on a Reuters story that suggested that the European Central Bank (ECB) was annoyed with Mario Draghi’s management style, raising questions about the future of his easy-money policies.
Wednesday was a day of fear and loathing. Fear ahead of the ECB statement and loathing because of the results of the US mid-term elections. The US dollar rally resumed, supported by decent ADP employment data.
On Thursday, the Kuroda Draghi took a big bite out of the US dollar bears. The reportedly fractured ECB board showed a united front with unanimous support for key changes in the ECB statement. The statement was seen as doveish and alluding to imminent action for another round of stimulus. EURUSD tanked. The US dollar spent the rest of the day consolidating gains ahead of Friday’s employment report.
The week that will be
The new week has a tough act to follow and although it won’t be a snooze-fest, it will be akin to a post-Thanksgiving dinner nap. All the hoopla and excitement leading up to the dinner vanishes when your belly is bursting the buttons on your shirt and your eyelids are made heavy by that last litre of wine. Traders will be left to determine how regional data releases will affect the overall US dollar trend.
Chinese CPI and PPI data kick off Monday but unless the data is well-off, expectations are that the impact will be short-lived.
On Tuesday, the Reserve Bank of New Zealand governor, Graeme Wheeler, will give a speech and with NZDUSD down 12 big figures from July, he is likely to take a step back from Kiwi bashing.
On Wednesday, the focus shifts to the UK with the employment report and the Bank of England Quarterly Inflation Report scheduled.
Thursday will be about Chinese Industrial Production data, German inflation and the ECB Monthly Report.
FX markets may get a dose of volatility on Friday with a slew of Eurozone economic reports and the EU CPI and GDP reports. The day ends with US Retail Sales and the Michigan Consumer Confidence Survey.