Monday, Monday, can’t trust that day December 1, 2014

Monday, Monday, can’t trust that day

Michael O’Neill

FX Consultant / IFXA Ltd



  • US dollar pops despite soft ISM
  • FX markets start week jockeying for position ahead of event risk
  • Loonie doesn’t make it easy for traders

By Michael O’NeillThe US dollar popped slightly higher despite a weaker-than-expected ISM report that underscores the nervousness of traders ahead of this week’s central bank meetings and nonfarm payrolls report. USDCAD has retreated from the highs on a small rebound in oil prices, which managed to stop out weak long positions while AUDUSD traders are eagerly awaiting Tuesday’s Reserve Bank of Australia meeting.
Sometimes it just turns out that way

The Mamas & the Papas may have been on to something back in 1966 judging by the way today has shaped up. Last week’s US dollar bulls appear to have gotten spooked ahead of central bank meetings and the US nonfarm payrolls (NFP) report driving the US dollar lower across the G10 board.

AUDUSD is bouncing from its lows ahead of tonight’s Reserve Bank of Australia meeting, which is probably a “just in case trade”. Just in case the RBA disappoints and the short AUDUSD trades get squeezed.

Moody’s downgraded Japan credit rating to A1 stable, and USDJPY traders got confused, unsure of whether to buy or sell. Apparently they concluded that when in doubt, take profit, with USDJPY retracing nearly 50% of the rally from last Wednesday.

Amid encouraging economic data, the UK’s retailers are preparing
for their busiest time of the year. Photo: Getty

Switzerland’s eagerly-anticipated gold referendum result (No to expanding gold purchases) was met with a shrug by FX markets although gold took a bit of a hit.

The GBPUSD short-term bearish trend was abruptly snapped when UK data beat expectations and provided indications that the UK economy was doing far better than its cross-channel peers. GBPUSD gained more than 0.0120 points on better-than-expected data including a gain in the Markit Manufacturing PMI.

The Eurozone PMIs were mixed but the spectre of the European Central Bank (ECB) meeting looming on Thursday seems to be behind today’s bounce in EURUSD. Similar to AUDUSD traders, EURUSD is in demand, “just in case”.

USDX rally takes a breather

Expectations for a period of FX consolidation ahead of Thursday’s ECB and Friday’s NFP reports is supported by the pause in last week’s USDX rally from the November 27 low of 85.20, which met positive short-term resistance at 88.55. A drop through uptrend support at 87.80 could extend losses to 87.20. A move above 88.55 targets 89.20, a level unseen since June 2010.

Chart: USDX 4-hour with uptrend and resistance shown

Source: Saxo Bank

I’ve got money in my pocket and gas in my car

“Put a tiger in your tank” was a popular advertising slogan many years ago for what is now ExxonMobil. The 2014 version would be “Put a tiger in your tank and a twenty in your pocket”. For all the doom and gloom scenarios surrounding the free-fall in oil prices, you will be hard pressed to find any motorists upset with the move.

Gas prices have declined as well although not nearly as far as they should have given the size of the WTI drop. Oil company executives will provide reams of gobbledygook as to why the pump prices do not reflect the current environment but padding their bottom line won’t be one of them. Despite the oil company gouging, consumers now have a few extra bucks to spend, and with the Christmas season at hand, that can’t be a bad thing.

Loonie oozes higher as oil plunge pauses

The Loonie is not be making it easy for USDCAD bulls. Position adjustments ahead of Wednesday’s BoC meeting and Friday’s US and Canadian employment data should lead to choppy range trading within a 1.1320-11.1460 band. The short-term technicals turned bullish on Thursday with the break through the downtrend line at 1.1370, following the Opec announcement.

The subsequent rally hit a ceiling in the 1.1445-50 zone, the same area where the early November rally stalled. Today, the mix of general US weakness against the majors and a bounce in WTI oil prices led to a sharp USDCAD sell-off that triggered stops below 1.1405. USDCAD support is at 1.1350-60 and then at 1.1320. A move above 1.1410 puts the focus back at 1.1460.

Chart USDCAD 30-minute

Source: Saxo Bank

The Central Banker Games – MockingRBA

The Hunger Games: Mockingjay
is the last book in the Hunger Games trilogy, an entertaining tale inspired by Greek mythology. Central Bank Games: MockingRBA kicks off the final central bank meetings of 2014 and can be just as entertaining for traders in all markets.

On Tuesday, the Reserve Bank of Australia (RBA) is widely expected to leave rates unchanged while continuing to whine about the high level of the currency.

Wednesday, the Bank of Canada statement will be scrutinised for any evidence of a change in its belief that domestic inflation increases are temporary.

Thursday, the Bank of England (BoE) and European Central Bank (ECB) take their turn at the games. The BoE will be a sideshow to the main event that will be Mario Draghi. The ECB is expected to leave policy rates unchanged as they await further results from their previous actions.

Key Canadian data releases

Wednesday: Bank of Canada rate decision and statement
Friday: November employment report (Forecast 5,000 vs. 43,100 in October). The impact of this ever-dodgy data series is usually short-lived. If oil prices continue to slide the impact of a better- -than-expected report will be minimal.

Friday: October Merchandise Trade (Forecast: Surplus $200 million). A larger-than-expected surplus combined with a strong employment report would reinforce the USDCAD resistance zone in the 1.1460-1.1500 area.

Key US data releases

Friday: November Nonfarm Payrolls (NFP [Forecast 232,000, unemployment rate 6.6%]) There doesn’t seem to be an elevated level of anticipation for this month’s NFP release like there has been for a few of its predecessors. That suggests that only a big miss either side will spark some volatility.

Friday: October Trade Balance (Forecast deficit 41.5 billion vs. Sept. deficit 43.03 billion)

Categories FX, Foreign Exchange, Currency, Canadian Dollar

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