Markets ride seesaw looking for direction 17Nov14

Markets ride seesaw looking for direction

Michael O’Neill

FX Consultant / IFXA Ltd



  • USDJPY soars, sinks and climbs again
  • G20 ends with Aussies stuck with the bill
  • CAD crosses keeping USDCAD rangebound

By Michael O’Neill

The FX week started with a bang in Japan after news that the Land of the Rising Sun has tipped into a technical recession. USDJPY soared on the news, sank on profit-taking and is now hovering around the level it was at before the release. European Central Bank president Mario Draghi is still warning markets that the ECB could purchase government bonds, which has undermined EURUSD. Overall, the US dollar is bid at the moment.

Odd man out

The G20 in Australia has come and gone but the piper still has to be paid. Australians are on the hook for roughly AUD$500 million so that 20 world leaders could get warm and cuddly with koala bears while giving the cold shoulder to Russia’s Vladimir Putin. Sort of Love Story meets Mean Girls. And the meanest girl of them all was Canada’s Stephen Harper, who shook Putin’s hand while saying “Get out of the Ukraine”. He put the “ass” in diplomacy.

The UK’s prime minister David Cameron today warned of "red warning lights" flashing
all over the state of the global economy. Photo: Getty

The G20 (or was it G19) ended with a plan to boost global GDP by $2 trillion over five years which is, coincidentally just about the amount of money that will be spent if the rest of the world gets dragged into an escalating Russia/Ukraine conflict. FX traders ignored the G20 communique.

Ride my Seesaw

The Moody Blues first sang Ride my Seesaw during the “psychedelic sixties”, a tune enhanced by the quantity and quality of ingested illicit pharmaceuticals. This week, traders will be riding an FX seesaw and, instead of pharmaceuticals, it will be the reams of regional data that will get currencies on the seesaw. Tomorrow, UK CPI, PPI and Retail Sales will either support or sink GBPUSD while the German ZEW survey will have the same effect on EURUSD. However, the 800 pound gorilla in the room is the Federal Open Market Committee (FOMC) minutes on Wednesday. The regional data, although important for the individual currency pairs, will be quickly forgotten depending on the tone of the minutes, which will ensure a very lively trading day on Thursday.

USDCAD traders have a cross to bear

USDCAD traders have been flummoxed by recent trading activity. One day USDCAD soars as oil prices sink. Another day, oil prices sink and USDCAD sinks as well. Breaks of major resistance and support areas have been proven to be unsustainable and short-term trading positions risk getting chopped and diced. The blame can be laid squarely on EURCAD and GBPCAD. Both these crosses have been locked into 500-point ranges since September despite multiple attempts at the floor and the ceiling. Until these ranges are broken, the current USDCAD trading pattern is destined to be repeated.

Chart: EURCAD and GBPCAD daily with WTI and USDX

Source: Saxo Bank

Key US data releases

Wednesday: October Housing Starts/Building Permits (Forecast Starts 1.025 million, Permits 1.04 million). A small rise is expected but will be ignored, as usual, ahead of FOMC minutes.

Wednesday: FOMC minutes

Thursday: October CPI. (Forecast 1.6%, ex-food and energy, 1.8%). The risk is for a lower-than- expected result due to the drop in inflation expectations in Friday’s University of Michigan Consumer Sentiment Report.

Thursday: October Existing Home Sales (Forecast 5.17 million vs Sept 5.17 million).

Key Canadian data releases

There isn’t any important data from Canada until Friday

Friday: October CPI (Forecast 2.0%, Core 2.2%, year-over-year). Higher-than-expected inflation data make it difficult for the Bank of Canada (BoC) to continue to highlight deflation concerns and boost the Canadian dollar. On the other hand, softer data plays into the BoC’s hands and would undermine the Loonie.

Chart: Change in CPI

Source: Statistics Canada

Categories FX, Foreign Exchange, Currency, Canadian Dollar

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

search previous next tag category expand menu location phone mail time cart zoom edit close