2014 fades to a black, oily Greece 31Dec14

2014 fades to a black, oily Greece

Michael O’Neill

FX Consultant / IFXA Ltd



  • Today’s US data will barely cause a ripple
  • Final fixing for the year may be a let-down
  • Oil soft and Greece in the spotlight

By Michael O’Neill

The US dollar is ending the year with gains across the board against the majors. It shouldn’t be a surprise since America is poised to raise rates while most of the other nations are looking to cut them. Greece concerns remained elevated overnight while downward pressure on oil prices undermined commodity prices. Today’s US data (Jobless claims, Chicago PMI and Pending Home Sales) won’t cause much of a stir with markets closing early. The month-end/year-end fix may only cause a minimal disruption due to the holidays.

Fade to black

2014 is fading to black. And just like Metallica’s 1984 song Fade to Black, 2014 started off slow and sleepy before becoming a cacophony of noise and volatility.

January began with slow markets and cold weather. A polar vortex gripped the Northern Hemisphere, New Zealand was rattled by a major earthquake and the Federal Reserve Open Market (FOMC) tapering program prospects were rattling traders. It ended with a mini emerging market crisis when Turkey doubled interest rates in response to negative domestic and external developments.

February set the stage for the next few months. Janet Yellen took the helm of the Federal Reserve, a disappointing nonfarm payrolls number confused dollar bulls and Mario Draghi continued talking about “waiting for additional data” before taking any stimulus action. Russia hosted the 2014 Winter Olympics in Sochi, claiming 33 medals by the close of the games and Crimea by the close of the month.

March came in like a lion, or rather a bear, a big Russian bear raising fears that after digesting Crimea, President Vladimir Putin had his sights set on Ukraine. Commodity markets tumbled, led by copper, when China announced weaker-than-expected trade data. Copper prices hit a four year low and risk aversion was a popular theme. Yellen suggested that the definition of “considerable time” might be six months and the dollar bulls got excited.

Scenes such as these in Kiev’s centre are among the abiding images of 2014. Photo: Thinkstock

April fools were plentiful at the start of the month when nonfarm payrolls failed to deliver a spectacularly strong print making a reasonable number a reason to sell. By the end of April, the Fed seemed to be redefining the definition of “considerable time”. Meanwhile, the European Central Bank’s Draghi was still talking stimulus but not acting. April ended with Russia and Ukraine openly hostile and the US Secretary of State, John Kerry, threatening Russia with sanctions.

May brings flowers which is because they are well fertilized and fertilizer was plentiful at the start of the month. Yellen’s testimony to Congress was a head scratcher sounding simultaneously bullish and bearish. Draghi dropped a verbal bomb at his press conference hinting at stimulus action “next month”. Russia and Ukraine continued trading real bombs.

June had two D-Day’s. The usual June 6 remembrance services and June 5, Draghi Day. Draghi delivered on his promise in May and introduced negative deposit rates. That caused a stir, but not as big as the stir caused by the start of the FIFA World Cup on June 12. The Islamic State of Iraq and Syria (ISIS) entered the lexicon of the masses at the end of the month due to their brutal actions and surprisingly rapid military achievements.

The World Cup distracted traders for the first part of July until Germany won the tournament. Hot summer temperatures were being blamed for concerns that collectively, the FOMC was suffering from heatstroke for what appeared to be an inability to articulate a strategy for transitioning from tapering to tightening. Someone in the Ukraine war zone, perhaps also suffering heat stroke shot a passenger plane out of the sky and Russia was threatened with more sanctions.

August is said to host the dog days but this August’s were the dog days of war. The US led airstrikes against ISIS positions in Iraq while Russian troops, which Russia said weren’t in the Ukraine, left the areas that they were never in. The month ended with the Jackson Hole Symposium in the limelight. Traders were disappointed (again) in Yellen’s speech and hopeful for more action from Draghi’s speech. In Canada, Statistics Canada was left red-faced after a blunder with the employment report necessitated its re-release a week later.

September kicked off Currency Devaluation Season. It started with renewed expectations for more Japanese stimulus when Prime Minister Shinzo Abe appointed a “like-minded” individual to oversee the $1.2 trillion Government Pension Investment Fund. The JPY sank. It kicked into high gear with the ECB’s announcement of another rate cut and an Asset Backed Security purchase program. EUR sank. The Scottish referendum on independence got a lot of attention when news broke that the separatists were leading in the polls. Cable sank. The month ended with the Reserve Bank of New Zealand confirming that it had joined in the devaluation game by actively selling Kiwi. NZD sank.

October is always an interesting month and this year was no different. Ebola fears led to US equity market carnage and a spike in FX volatility. Oil prices plunged. The dollar soared. (Today- WTI oil at $79.10/barrel looks rather attractive). US Retail Sales missed and the dollar tanked. And that was all in one day but representative of the first two weeks of the month. Japan ended the month with a big bang announcing new stimulus measures and JPY dropped 2.6%.

November saw a continuation of oil price deterioration, a snap election call by Abe, a hint of further stimulus action by the ECB and the Bank of England governor parroting Yellen’s statement about “focusing on the data”

December wrapped up the year with the US dollar in demand and the Russian ruble nearly rubble as collapsing oil prices and sanctions took a toll. The FOMC were no longer leaving rates low for a “considerable time” but instead were going to be “patient. The dollar stayed bid as the markets wound down for the Christmas holidays.

Hit the Lights –the New Year is upon us.

The collapse of oil prices and the ramifications for oil-dependent currencies emerged
as one of the stories of the year in November and December. Photo: Thinkstock


Grease is the word and Greece is the worry 29Dec14

Grease is the word and Greece is the worry

Michael O’Neill

FX Consultant / IFXA Ltd



  • Greece returns with new drama
  • Copper price drop — beware the Ides of March?
  • USDX looks bullish

By Michael O’Neill

The Christmas gifts have been exchanged and for many, this is the week that they are exchanged again; this time for a different colour, size, style or just plain ol’ cash. The real unhappy people are those who wish they could return their downloaded copies of Sony’s The Interview — a cinematic equivalent of "root canal without anesthesia".

This week is another short week, interrupted by New Year’s Eve celebrations and the New Year’s Day holiday. As usual, North American markets will try to get a head start on the partying by closing early. However there is a risk of early fireworks stemming from month, quarter and year end repatriation and portfolio rebalancing flows.

Greece heading back to the polls

Grease was the word in a 1978 movie with John Travolta and Olivia Newton-John, and Greece is the worry for the last three trading days of 2014. News of another general election in January and the rise in popularity of the anti-austerity Syriza party could endanger the bail-out and raise havoc in the Eurozone. The news didn’t faze the EURUSD though, which traded in a 1.2168-1.2220 band.

Copper barometer stokes China slowdown fears

Copper prices touched a four-year low today and are down 15% for the year. This doesn’t bode well for Chinese economic growth expectations as copper prices are seen as a barometer for the health of the domestic economy. Additional evidence of a Chinese slowdown may be found on Wednesday with the release of the HSBC China PMI index (Forecast 49.5). The conclusion will be that global economic growth is at risk and commodity currencies are vulnerable.

However, nine months ago, in March, a sharp drop in copper prices raised all the same concerns. The USD rose and fell with every tick in copper prices. Eventually, the consensus concluded that speculation rather than an overwhelming shift in demand played the major role in the price correction. The global economy survived.

Chart: Copper daily

Source: Saxo Bank

US dollar index points to further gains.

The US dollar index (USDX) continues to grind higher within the rising channel, intact since December 15. The break of long-term resistance at 90.05 led to a probe of additional resistance at 90.35 which has held (so far). A break of this level projects further gains to the 90.86-90.95 area, which was last seen in 2009. A move below 90.05 could extend losses to 89.60.

Chart: USDX 4 hour with uptrend channel

Source: Saxo Bank

USDCAD outlook for the week

There isn’t any data of note from Canada that will provide any trading insight or direction this week, leaving the currency pair at the mercy of US dollar direction and oil prices. USDCAD and Oil are tracking fairly well and the lack of trading activity is arguing for another deathly dull week.

Range for the week is 1.1550-1.1650

Chart: USDCAD 4 hour and Oil

Source: Saxo Bank

Portfolio rebalancing may favour the Canadian dollar

The dull, weak sentiment could change rapidly (at least for brief moments) on Wednesday on the back of month-end portfolio rebalancing flows. The large gains in US equities compared to that of the TSE suggests the possibility of Canadian dollar demand for the Fix. Realistically, the actual direction and size of the flows are hard to predict due to the sheer numbers of players involved,
Chart: TSX comparison with US indices

Source: Yahoo Finance

Key US data releases

Tuesday: Conference Board Consumer Confidence Survey. Falling gas prices may help to bolster this data series, which is already at seven-year highs.

Wednesday: Initial Jobless Claims (Forecast 290,000) released a day ahead of time due to New Year’s Day holiday.

Wednesday: Chicago PMI Index

Friday: ISM Manufacturing PMI (Forecast 57.6) Markit Manufacturing PMI

There are no key Canadian data releases this week.

Oil price swings dictate USDCAD direction 22Dec14

Oil price swings dictate USDCAD direction

Michael O’Neill

FX Consultant / IFXA Ltd



  • WTI dip boosts USDCAD
  • Lots of US data ahead but little impact expected
  • Sanctions and hacking – a Christmas tale

By Michael O’Neill

The week starts much the way it left off on Friday. The US dollar is still bid against the majors, oil price movements drive the commodity currency bloc and the Russian ruble remains under pressure.

It is also the start of the holiday season, the time to wish warm greetings and holiday blessings on your neighbors. That is, unless you are Canada and the USA. Then it is the time to announce additional sanctions on Russia. Canada added 11 Russian and 9 Ukrainian individuals to the banned list. President Obama banned the leader of a Russian motorcycle club. (in case he was planning a run across the Bering Strait.)

Mr. Obama was also in full presidential indignation over the alleged hacking of Sony pictures by North Korea and is contemplating a response. He should be contemplating a geography book as he apparently is unaware that Sony is a Japanese corporation and although Japan may be an ally, it is still a sovereign nation. Hacking Sony is Japan’s problem, not America’s.

None of these events had any impact on FX markets.

EURCAD and CADJPY support for Loonie eroding

The Canadian dollar is seeing a short term erosion in support as EURCAD selling abates and that cross turns higher while at the same time CADJPY demand is bumping into resistance in the 103.50-60 zone. This is likely only a holiday phenomenon as both EUR and JPY are widely expected to continue to decline in the New Year. However, for this week, it could be problematic for USDCAD bears, especially if WTI takes a nasty turn for the worse.

CADJPY 4-hour with resistance at 103.50-60 noted

Source: Saxo Bank

EURCAD 4-hour with intraday uptrends noted

Source: Saxo Bank

“You’re a mean one, Mister Naimi”

Saudi Arabia’s decision not to cut oil production in November had serious repercussions for oil producing nations, particularly Russia. However, Russia was likely collateral damage as the decision to let oil prices drop was aimed directly at American shale oil producers. The Wall Street Journal reports that the new Saudi strategy is a deliberate attempt to protect its market share and that the kingdom’s economy can survive at least two years with low prices.

Russia was collateral damage – Saudi Arabia’s real target is US shale producers. Pic: iStock

The target may have been American shale producers but Canadian oil sands companies have been caught in the crossfire and that has hurt the Canadian dollar.

USDCAD has rallied today from 1.1594 at the open to 1.1627 currently as WTI dipped from $57,47/bbl to $56.39.

There isn’t any Canadian economic data to help with Loonie direction this week so expect the high correlation of USDCAD to WTI to continue.

USDCAD and US oil hourly

Source: Saxo Bank

Key US data releases

Tuesday is data day for the week and despite the sheer volume of releases, the impact on FX trading is likely to be negligible.


November Durable Goods (Forecast 2.5%, ex-transportation 1.0%)
November Q3 GDP (Forecast 4.1% annualised)
November Personal Consumption and Expenditures (Consumption 0.5%, Expenditures 0.5%, month over month)

Key Canadian data releases


October GDP (Forecast 0.1%). The October data is expected to be a tad softer following a strong September showing. The impact on USDCAD will be limited.

– Edited by Clare MacCarthy

Michael O’Neill is an FX consultant at IFXA Ltd.

Weak ahead will be dead 19Dec14

Week ahead will be dead

Michael O’Neill

FX Consultant / IFXA Ltd


  • Canadian data halts Loonie gains (for now)
  • USDX a nice present for US dollar bulls
  • Week ahead will be quiet

By Michael O’Neill

This week’s wild ride is ending in the slow lane, in part, due to a lack of data to provide trading inspiration and because of the annual "head for the door, it’s Christmas" sentiment permeating markets.

Canadian data fails to inspire

There hasn’t been much in the way of Canadian data to help provide traders with short-term direction since last week’s Bank of Canada Financial Stability Report. That left the Loonie vulnerable to the ebbs and flows of oil prices and US dollar sentiment. Today’s Retail Sales and inflation data could have changed all of that. It did not.

November headline inflation was slightly weaker than expected (Negative 0.2% vs. forecast of negative 0.1%). Core CPI missed as well, coming in at 0.0%. On the other hand, Retail Sales slightly beat the forecasts, which suggests that one cancels the other.

FX traders didn’t see it that way and drove USDCAD to 1.1630 from 1.1605 before it retreated. Today’s inflation data further validated the Bank of Canada’s (BoC) view that inflation gains were temporary. However, even if there may be no danger that the BoC matches a Fed rate move, Canadian rates aren’t going south either as the BoC is neutral. This data won’t change that stance.

Canadian dollar outlook

Looking forward, the outlook for USDCAD is likely to be 60-40 in favour of a move higher, predominately driven by oil prices. However, the lack of data next week, the holiday season and the proximity to year-end rebalancing flows, in addition to the large gains already achieved this month is, in my view, evidence that we have seen the high for USDCAD (at 1.1674) for 2014, barring a collapse in WTI prices below $50.00/bbl.

USDCAD technical outlook.

The short-term USDCAD technicals are bullish while trading above 1.1440 with the move above 1.1505 supporting an acceleration of gains towards 1.1775-1.1830. The intraday technicals are also bullish while trading above 1.1590. However, a failure to move through intraday resistance at 1.1630-35 could extend the current short-term consolidation phase. Below 1.1590 targets the 1.1525-35 area.

Chart: USDCAD with possible Christmas week trading range shown

Source: Saxo Bank

USDX still supports US dollar gains

The USDX embarked on another moonshot this week, aided and abetted by the FOMC statement and press conference. The short-term technicals are in a rising channel above support at 89.44, targeting further gains towards major resistance in the 89.90-90.30 area. These are levels that have not been seen since 2009. In addition, the steepness of the post-FOMC rally and the time of the year risks a correction back to support in the 89.10 area. However, at this time of year, the shortage of liquidity tends to greatly reduce the validity of any short-term technical analysis.

Chart: USDX 4 hour with uptrend channel

Source: Saxo Bank

The week that was

A treasure trove of data from around the world did not provide traders with enough riches to distract them from their laser-eyed focus on the Federal Open Market Committee (FOMC) statement and Janet Yellen’s press conference. However, as usual, different regions took a turn in the spotlight with the one constant theme throughout the week being poor liquidity.

Monday was all about Japan and the super majority win by the incumbent prime minister, Shinto Abe. Not to be outshone by Tokyo, the European Central Bank’s Ewald Nowotny tried to stimulate interest in EURUSD by hinting at potential quantitative easing.

The fall in yen will undoubtedly have an impact on festive Japanese retail sales.
Photo: iStock

Tuesday was still about Japan in the early going as USDJPY, EURJPY and other yen crosses rode an out-of-control rollercoaster. Orderly selling of US dollar vs. the majors turned into a rout during the European session despite lacking a clear catalyst for the move. The Russian ruble was on everyone’s radar as it dropped into an abyss despite the Central Bank hiking interest rates to 17% from 10.5%, sparking fears of an emerging market contagion.

Wednesday was an odd trading session for an FOMC meeting day. FX markets were volatile before and after the FOMC statement and press conference. During the European session, Russian ruble currency moves captured the lion’s share of the attention with the Russian Ministry of Finance reportedly intervening. GBPUSD whip-sawed on the back of a weaker-than-expected employment report and the Bank of England (BoE) minutes. After the FOMC statement and Janet Yellen’s press conference, traders looked for "patience" after losing a "considerable time".

Thursday was the previous three days on Valium, unless you lived in Switzerland or were short EURCHF. The SNB’s announcement of negative rates on sight deposits gave a boost to EURCHF. Traders ignored German IFO data but jumped all over GBPUSD on news that Retail Sales beat forecasts by a wide margin.

The week that will be

The week that will be, won’t be much. Christmas holiday celebrations will shut down most of the major markets from Wednesday afternoon to the rest of the week. Sure, some poor mopes will be at their desks on Boxing Day but they will be far more active raising their levels in Candy Crush then trading FX. Still, for those who didn’t book off next week, there is a lot of data to digest at the start.

Monday will start off slow and is likely to stay that way if the FX moves will be data dependent, since there isn’t anything on tap anywhere to get traders’ hearts pounding.

Tuesday is data day for this week. It will start slow with Japan closed for the Emperor’s birthday but will improve during the European session. UK GDP data may be enough to get sterling traders away from the egg nog bowl with an upside surprise likely giving GBPUSD a lift. A slew of US data releases including Durable Goods, GDP, and Michigan Consumer Sentiment could reignite US dollar demand if they combine to show that US economic growth is accelerating.

Wednesday is Christmas Eve and pretty much wraps up the trading week (except for Japan). The sparse data releases will be ignored in favour of holiday wishes and travel plans.

2014 Christmas Poem

T’Was just days before Christmas

By Michael O’Neill (with apologies to Clement C. Moore)

T’was just days before Christmas and traders galore,

Were closing positions and heading out the door.

The year was reviewed by all traders with care,

In hopes of finding answers to the questions out there.

The questions were known, the answers they dread

While visions of ECB easing danced in their head.

And Ms. Yellen in her kerchief, may have got a bum rap

For that dove may have warned a rate hike is on tap

She said “Considerable time” is now, “patience”, and oh what a clatter,

When the big dollar went bid and the Euro did shatter.

Euro bulls were in trouble, they knew in a flash,

Losses were mounting in both futures and cash.

Traders were sobbing, burying their heads in the snow

Wanting a savior to come and put on a show

When what to their wondering eyes should appear

But a merry central banker with eyes filled with cheer

His glasses on his nose and his Armani suit rather baggy,

I knew in a moment it was Mario Draghi.

More rapid than eagles, EU members they came,

And he whistled and shouted and called them by name!

Now Hollande, now Renzi, now Merkel, you vixen

I will stifle deflation with a new QE blitzen

We will print trillions of Euros and buy everyone’s bonds

And to hell with what they’re doing, across the great pond.

More jobs, more growth, prosperity for all.

I’ll tell you how on my next conference call.

He sprang to his sleigh, to his team gave a whistle

And disappeared in the night with the speed of a missile.

But I heard him exclaim ’ere he drove out of sight.

Merry Christmas to all and to all a good night.

A Rising oil tide lifts all Loonie boats 18Dec14


A Rising oil tide lifts all Loonie boats

USDCAD Open 1.1574-80 Overnight Range 1.1572-1.1646

USDCAD was ignored in Asia but Europe was a different story. A bounce in WTI during the European session with a dash of EURCAD selling thrown in for good measure, helped to drive USDCAD through the intraday floor at 1.1600-05 down to 1.1572 before it ran out of steam.

The bounce in WTI has offset some of the pressure from the FOMC’s slightly hawkish stance which suggests USDCAD may be range bound into year-end. For now, oil price movements trump US rate hike concerns.

The intraday USDCAD technicals are bearish while trading below 1.1630 looking for a break of the minor support at 1.1550 for a test of the November uptrend line at 1.1500-05. Below this level opens up a deeper correction to 1.1340. A break above 1.1680 will lead to 1.1730.

Today’s Range: 1.1510-1.1610

‘Tis the season to be jolly well alert 17Dec14

‘Tis the season to be jolly well alert

Michael O’Neill

FX Consultant / IFXA Ltd



  • Time of year a major factor in FX moves
  • ‘Considerable time’ heads for dustbin of history
  • USDCAD approaches long-term peak

By Michael O’Neill

The usual quiet day ahead of the Federal Open Market Committee (FOMC) meeting failed to materialise today, thanks to AUDUSD weakness, the UK employment report and Russian ruble prospects. News that Jeb Bush was considering a presidential run to complete a Bush Trifecta failed to cause a ripple in markets. The opening of Sony Pictures’ The Interview in New York has been delayed because Kim Jong-unhappy. USDJPY traders ignored this development.

Poor liquidity equals volatility

FX volatility has exploded higher over the past few weeks as RUB and NOK traders can attest to. However, it hasn’t been limited to those currencies. Recently, USDJPY didn’t know if it was coming or going so it went in both directions. EURUSD suffered the same fate. Emerging market currencies have been hit hard as well, with the currencies of South Africa and Mexico at four-year lows.

It didn’t all start with a big bang but it was close. The Opec decision on November 27 not to cut production toppled the dominoes. Oil prices plunged as did petro-currencies. Russia, already suffering from G7sanctions, got hit hardest with the spectre of the 1998 “Russian flu” hanging in the air.

US Retail Sales figures have enjoyed an upturn due
partly to festive shopping bonanzas. Photo: Getty

The Greek election call reminded the world that the Eurozone was still, “if not a basket case” then dazed and confused. The Japanese election added another element of uncertainty to Asia while ongoing slowing growth concerns for China undercut commodities.

The US economy is rebounding. There are ever-rising expectations of a US rate hike against a global backdrop of currency devaluations to stimulate growth and the world has bought US dollars.

There is a fifth dimension beyond that which is known to man. It is a dimension as vast as space and as timeless as infinity. It is the middle ground between light and shadow, between science and superstition, and it lies between the pit of man’s fears and the summit of his knowledge. This is the dimension of imagination. It is an area which we call the Twilight Zone” (Opening narration, The Twilight Zone, Season 1).

And that is where FX traders find themselves today. The oil shock and Russia meltdown occurred during the least liquid time of year (December) when the big liquidity providers close their books for the year. There are only nine or ten trading days (depending on where you live) left in the year and days such as Christmas Eve and New Year’s Eve shouldn’t even be counted. The FX moves and the effects of the events are exaggerated and should be taken with the proverbial “pinch of salt”.

The storm before the calm

The run-up to today’s FOMC meeting has seen an unusual amount of volatility this week that is a contrast to the norm. Instead of the usual “sit on the sidelines” awaiting the decision and statement, traders have been jockeying for position having been distracted by oil price movements, equity market sell-offs and concern over another bout of “Russian flu”.

A considerable number of people expect the FOMC to drop the “considerable time” reference in today’s statement. So what? Since including the reference, the Fed has stated time and again that any rate hikes will be data-dependent. Since the US has enjoyed a string of rather robust economic reports lately, the reference is now misleading. Data dependency is the key.

USDCAD outlook

The Canadian dollar is the wallflower at this FX market dance. USDCAD has been torn between falling oil prices and a strengthening US economy. At the moment, the oil focus has been winning but a lack of liquidity in year-end markets may be having an out-sized impact. A lack of domestic data has contributed to the USDCAD strength.

However, that may change on Friday. Canadian CPI, PPI and Retail Sales are all due. If inflation beats expectations (Forecast 2.2% headline vs 2.4 previous, year-over-year and Core 2.4% vs. previous 2.3%) despite the impact of falling oil prices, the Bank of Canada may be forced to change their “deflation risk” tune. US Retail Sales jumped due to Black Friday/Cyber Monday shopping. Canada may see a similar gain for the same reason with Canadians taking advantage of cross border deals.

USDCAD technical outlook

The USDCAD rally since July has been relentless and although the intraday technicals remain bullish above 1.1600, there are signs that the rally is running out of steam with the failure to extend gains below the intraday downtrend at 1.1660. A confirmed move below 1.1590 suggests further losses to 1.1490.

Longer term, 1.1775 represents the 38.2% retracement level of the entire 2002 peak of 1.6140 and the 2008 low of 0.9060. Furthermore, the 1.1830-70 level has been both support and resistance on a number of occasions from 2005-2009.

Chart: USDCAD 1 hour with potential downside target

Source: Saxo Bank

Chart: USDCAD 15 year weekly with Fibonacci retracement

Source: Saxo Bank