Fear the reaper not the data 15Dec14

Fear the reaper not the data

Michael O’Neill

FX Consultant / IFXA Ltd



  • Oil worries still dominate
  • Data load heavy-impact light
  • USDCAD uptrend intact

by Michael O’Neill
Blue Oyster Cult once sang about not fearing the reaper but in this week’s FX markets, the reaper is scarier than the data reportson tap. A deluge of data is being dumped on Tuesday including PMIs from China and throughout Europe in addition to ZEW surveys for Germany and the Eurozone. The UK unleashes a flurry of reports and events as well, beginning with a speech by Bank of England governor Mark Carney followed by PPI and Retail Sales with a Financial Stability Report thrown in for good measure.

Unfortunately, Wednesday’s Federal Open Market Committee (FOMC) meeting statement, with its elevated expectations for a hawkish shift in the tone, will negate the impact of Tuesday’s data.

Rising son in land of rising sun

Shinzo Abe is still the shining son in the land of the rising sun after Japanese voters gave him and his Liberal Democratic Party a super majority election win on Sunday. A poor voter turnout probably helped his cause. Nevertheless, he has reconfirmed his mandate for economic stimulus measures. USDJPY reacted accordingly, dropping about 1.05 points and then rallying back to where it started. Ho hum.

Japan’s voters hope their country’s fortunes can be turned around and on Sunday chose to re-elect Shinzo Abe as prime minister. Photo: iStock

Double, double oil and trouble

"The fire burn and the cauldron bubble, Opec pumps crude, oil profits are rubble".

The current oil market is not unlike the witches’ brew described in Macbeth. WTI got spanked again when Bloomberg reported comments attributed to the UAE’s energy minister. He suggested Opec will wait at least three months before considering an emergency meeting and wouldn’t change their mind because “prices went to $60 or $40/bbl. The market will stabilise itself”.

Oil prices recovered slightly after news that Libya’s oil output dropped significantly due to ongoing civil strife. Islamist forces have seized the country’s largest oilfield, and production has fallen from 850,000 bbls/per day in October to 350,000 bbls/per day.

However, the dismal outlook for oil has impacted the Loonie with USDCAD probing minor resistance at 1.1500. The correlation between USDCAD and WTI has returned, and in the absence of major domestic data and liquidity, it should remain pronounced until year end.

Chart; USDCAD and Oil-The correlation returns

Source: Saxo Bank

USDCAD technical outlook

The intraday and short-term USDCAD technicals are bullish. The intraday technicals are looking for a move to 1.1680 following the break of resistance in the 1.1530-40 area. This is supported by December’s steep uptrend channel bound by 1.1540 on the bottom and 1.1670 on the top. A move below 1.1540 argues for a return to 1.1480.

Chart: USDCAD 4 hour with uptrend channel

Source: Saxo Bank

Key US and Canadian data releases

Traders will be hard-pressed to find much in the way of market moving data from the US this week, and what data there is, will be overshadowed by Wednesday’s FOMC meeting. The Canadian data is back-loaded to Friday, which could have an impact on USDCAD.

Key Canadian data releases

Friday: November CPI (Forecast 2.3%, Core 2.4%, year-over-year). The impact of falling oil prices has economists undecided as to whether this month’s release will be higher or lower. The BoC believes recent inflation increases are temporary and another increase could leave the governor scrambling to dismiss it.

Friday: November Retail Sales (Forecast 0.2%, ex-autos 0.1%, month over month). The impact of falling gas prices could weigh on the data.

Key US data releases

Wednesday: November CPI (Forecast 0.1%, ex food-energy 0.1% month over month)
Wednesday: FOMC meeting

Categories FX, Foreign Exchange, Currency, Canadian Dollar

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