Loonie tarred and feathers plucked-30Jan15

Loonie tarred and feathers plucked

Michael O’Neill

FX Consultant / IFXA Ltd


  • US data keeps economic recovery story alive
  • Canadian data tells a different story
  • USDCAD sees 1.3000 in its future

By Michael O’Neill

An exciting and volatile week in FX land is ending in an exciting and volatile way, especially for USDCAD traders.

The Canadian dollar has won the dubious honour of being the worst performing currency in the G-10 in January, down an eye-opening 9.3% and catching more than a few investors of guard.

Rubbing salt into the wound was this morning’s worse-than-expected November GDP data. (Actual negative 0.2% vs forecast 0%, month over month). A weak manufacturing sector completes the trifecta of weak energy and mining. The weakness in Canada became more pronounced beside the US data which was, arguably, in line with expectations.

Chart: Weak Canadian Manufacturing

Source Statistics Canada

BoC no friend of the Loonie

The Bank of Canada’s decision to cut interest rates by 0.25% was far more than a surprise to the economists at Canada’s “Big Five” banks, they were astonished. Almost all of them had interpreted Deputy Governor Lane’s speech expressing concern over falling oil prices to mean that the expected BoC rate hikes would be delayed until Q1 2016. Ouch! They are now scrambling to completely re-write their 2015 forecasts and the year is only 30 days old.

The other victims of the rate cut were those investors/corporations needing to buy USDCAD who were patiently waiting for a retracement back to 1.1750-1.1800 from 1.2050. Now they are worried.

USDCAD has rallied nearly two big figures since yesterday’s Toronto close (1.2615-1.2795) mainly due to month-end portfolio rebalancing flows with a dash of extremely negative economic data thrown in. That would be bad enough by itself.

Unfortunately, the Loonie is being crushed by external forces as well, the key one being the ever widening gap between the Canadian and US growth outlook and interest rate differentials. Persistently, low oil prices will ensure the negative outlook continues.

USDCAD technical outlook

You need to step back into history to glean some insight into the current short-term outlook for the Canadian dollar and it isn’t pretty. (Unless you are long from much better levels or a US dollar seller).

The last time that USDCAD was in this area was March 2009. The financial crisis was in full-throttle and wild currency moves were the norm. A daily chart ( Chart 1) from March 2009 sees minimal resistance from 1.2750 to 1.3050.

The short-term outlook is also bullish while trading above 1.2470 representing the intraday trendline from the post BoC rate cut rally. It also highlights the fact that USDCAD can experience a nasty correction while remaining in an uptrend. For the week ahead, USDCAD resistance is at 1.2830 and 1.2910. Support is at 1.2710 and 1.2650.

USDCAD March 2009

Source: Saxo Bank

USDCAD 4 hour

Source: Saxo Bank

The week that was

It was another lively and entertaining week. Central bankers from Singapore, New Zealand and America provided the drama while New York State and city officials provided the comedy.

Monday opened with the results of the Greek election known but very few people to trade on them as both Australia and New Zealand were closed for national holidays. Understandably, liquidity was poor and EURUSD dropped to 1.1100. It didn’t last and EURUSD was soon back above 1.1200 and remained the main focus in Europe.

New York ignored financial markets and ran to strip grocery stores of anything edible in anticipation of a super blizzard dumping three feet of snow on the city that night and the next day. All city roads and subways were closed as of 11:00 pm and citizens told to stay off the streets.

Tuesday’s Asian session was all about choppy and erratic JPY trading. In Europe, EURCHF moves were just as erratic and choppy, giving rise to speculation that the Swiss National Bank wasn’t finished with having its way with that market. The New York trading session was pretty much non-existent and so was the blizzard. “Gee, a New York official over-reacting; who woulda thunk it?”

Wednesday started dazed and ended confused. An article by Terry McCrann in the Melbourne Herald Sun stating that the Reserve Bank of Australia would cut rates on February 3 kicked the feet out from under AUDUSD. FX markets remained skittish until the FOMC statement.

Meanwhile, New Yorkers were glumly staring at the mound of groceries in their kitchens asking “what will we do with all this food?” Confusion reigned after the FOMC statement. It had something for everybody-hawks, doves, bulls and bears. Asia opened with news that the RBNZ left rates unchanged, but an extremely doveish statement trashed NZDUSD.

Thursday, traders sucked up US dollars like a Dirt Devil on dust. Commodity price pressures and pre-dealing for month-end portfolio rebalancing were partially responsible for the moves. USDCAD soared, gaining 0.0150 points just as London was getting ready to leave for the day. Hmm, is the pre-fix in?

The week that will be

The RBA will be one of two representatives of the Central Bank fraternity making interest rate announcements next week and Tuesday’s rate decision and announcement has already garnered a ton of attention among AUDUSD traders. The other representative is the Bank of England.

One has to wonder if Mark Carney is itching to make an impact on Thursday, like his cronies in the central bank club.

There will be no shortage of Central Bank speakers to provide their insight in recent activities, actions and outlooks, especially on Tuesday. St Louis Federal Reserve Bank (Fed) President Bullard speaks as does the Minneapolis Fed President and later on Governor Wheeler of the RBNZ takes to a podium. Forget about the dollar, all that hot-air could see a spike in global warming forecasts. Buy carbon credits, perhaps?

Wednesday’s US ADP employment data will put the spotlight on Friday’s nonfarm payrolls report while another Fed speaker attempts to shed light on the previous FOMC statement.

Friday will be lively starting out with the RBA Monetary Policy Statement leading to Canadian and US employment reports.


FOMC befuddles and Kiwi gets squeezed 29Jan15


FOMC befuddles and Kiwi gets squeezed

USDCAD Open 1.2545-50 Overnight Range 1.2514-60

Asia opened with traders trying to wrap their heads around the FOMC statement. Doves and hawks alike could find sentences to sink their talons into and the currencies responded in kind. That wasn’t the case for the RBNZ statement which was unequivocally doveish. Kiwi went south as did the Aussie on expectations that next Tuesday’s RBA meeting will offer up a similar statement.

USDCAD rose in sympathy with the antipodean moves but also because oil prices were soft and getting softer. Talk of another Bank of Canada rate cut in March and bullish technicals added to the bullish sentiment. The risk of weaker than expected Canada GDP on Friday (Forecast 0%) and the prospect of USDCAD demand on month end portfolio rebalancing will keep the focus to the top

The intraday USDCAD technicals are bullish while trading above 1.2485 looking for a break of minor resistance at 1.2565 to extend gains to 1.2635. A move below 1.2485 points to further weakness to 1.2440.

Today’s Range 1.2420-90

The FOMC statement is just the beginning 28Jan15

The FOMC statement is just the beginning

Michael O’Neill

FX Consultant / IFXA Ltd


Original post on Tradingfloor.com

  • FOMC statement a coin toss
  • Forward guidance is for fools
  • EURCAD demand supports Loonie

By Michael O’Neill

FX markets have been rocking and rolling like a Saturday night at “Ozzfest” although instead of screaming guitars we have screaming traders who were caught off-guard by central bank actions.
Traditionally, the days leading up to the release of a Federal Open Market Committee (FOMC) meeting statement are characterised by sluggish currency pair movement. Usually traders are content to bide their time until they discover what it is that the FOMC members have up their collective sleeves. That hasn’t been the case this week.

FX currency pairs have been all over the map, caught up in the aftermath of the European Central Bank’s (ECB) announcement of a massive quantitative easing program, the far left wing Syriza party victory in Greece, renewed pro Russia separatist and Ukraine violence and heightened instability in Libya and the Middle East. Oil price concerns and regional economic data surprises round out the volatility drivers.

This afternoon’s FOMC statement may be the opening act for another week of turmoil ahead of month end portfolio rebalancing flows and employment data on the following Friday.

FOMC schizophrenia

The lack of a press conference following today’s FOMC meeting implies that today’s statement would be fairly consistent with the December statement. The Fed may be unlikely to announce a major policy change without the benefit of a press conference to explain the changes. The conclusion that the statement will be doveish has contributed to an overall drop in the US dollar as evidenced by the fall in the US Dollar Index. (USDX).

That opinion seems to have changed in the past few days. There are a number of analysts, strategists and economists suggesting that the risk is that the FOMC statement is seen to be hawkish. They believe that keeping the wording very similar to the previous statement is an indication that the Committee is unconcerned with the slate of soft economic reports and that “patience” expires in June, as previously thought. If so, the US dollar will resume its rally.

USDX points to further US dollar gains.

Although the intraday USDX technicals are bearish with a downtrend from the 95.87 peak intact while trading below 94.80, a short term uptrend exists from 92.75 while trading above 94.20. A move back above 94.80 suggests a retest of the peak. A move below 94.20 would lead to a test of the longer term uptrend line currently at 93.55.

Chart: USDX 4 hour

Source: Saxo Bank

If you listen to fools-forward guidance

“Close the city and tell the people that something’s coming to call” (The Mob Rules, Black Sabbath 1981 album)

The denizens of New York City can be forgiven for thinking that they “listened to fools” after officials closed all roads and subways in the city of 8.4 million people on Tuesday, in anticipation of three feet of snow falling in a just a few hours.

The actual accumulation was in the neighbourhood of six (6) inches, a minor irritant almost anywhere in the northern hemisphere.

Another way of looking at it is that the weather report was ”forward guidance” or more aptly “forward mis-guidance” for city officials. FX traders know all about how forward guidance has been working especially over the past few weeks.

On January 12, 2015, a Swiss National Bank (SNB) member (Danthine) reportedly said that the EURCHF floor at 1.2000 will remain a cornerstone. Oops we lied. The Bank of Canada’s (BoC) led most senior economists to believe that a rate hike would be delayed, back in December. That forward guidance said nothing about a rate cut. And the Bank of England’s (BoE) Mark Carney has proven to be the master of “forward mis-guidance” with his rate hike /rate cut flip-flops.

No one is saying that the Central Bankers’ are fools but it certainly is foolish believing that forward guidance is a fact sheet rather than a wish list.

The bear facts about the Loonie

The outlook for the Loonie is bearish. USDCAD is supported by a number of factors including the risk of a second rate cut by the BoC in March, a further drop in oil prices, expectations for a US rate hike in June and a slowing of the global economy. The prospect of both another rate cut and weaker oil prices should have sent USDCAD skyward it hasn’t.

A key reason for the slow grind higher is Canadian dollar demand against EUR and JPY. Often times, the Canadian dollar is viewed as a proxy to the US and with long US dollar positions against the EUR near extreme (arguably) levels many see buying Canadian dollars as a proxy to the US. This is because increasing US economic growth bodes well for Canadian economic growth due to the size of Canada’s trade with its southern neighbor.

The following EURCAD chart shows that with the exception of one spike in December, EURCAD has stayed within a relatively narrow 0.0500 point band since October.

Chart EURCAD 4 hour with trading band

Source: Saxo Bank

– Edited by Clare MacCarthy

NYC snow day – FX slow day 27Jan15


NYC snow day – FX slow day

USDCAD Open 1.2475-80 Overnight Range 1.2435-1.2495

FX markets were a tad frothy but otherwise trading sideways. The difference is that for a few currencies the trading ranges were wide. USDJPY tested higher but didn’t like the air there and reversed itself. EURCHF jumped 0.0200 points to start the European session and the fell just as fast.

New York City essentially closed itself starting at 11:00pm last night declaring a Snow Day fearing a 3 foot snowfall. They got about a foot. If you fear the weather forecasters, then the weather forecasters have won! The success and ease of shutting down New York City for this storm as emergency planners salivating for the next one. Plans are being finalized to close the city on Feb.14, when “love is in the air”, the Ides of March” and April Shower Shirley.

US Durable Goods missed the mark. December orders were -3.5% vs forecast of 0.5% while the ex-Transportation data was -0.8% rather than 0.6% forecast. The dollar gave up some ground against EUR, GBP and JPY on sentiment that the data supports a benign FOMC statement tomorrow.

USDCAD, on the other hand, failed to derive any benefit from the weaker US dollar against the other majors, likely because of Canadian dollar selling for EUR, GBP and JPY. USDCAD continues to be supported by the soft oil price outlook and the prospect of further rate cuts by the Bank of Canada.

The intraday USDCAD technicals are bullish while trading above 1.2420. A move below this level suggests further losses to 1.2360 and possibly 1.2310. A break above hourly resistance at 1.2485-95 targets 1.2530

Today’s Range 1.2420-90

Twin focus for FX: Greece and FOMC 26Jan15

Twin focus for FX: Greece and FOMC

Michael O’Neill

FX Consultant / IFXA Ltd


Original Post on TradingFloor.com

  • Syriza win puts austerity to the test
  • FOMC meeting wait should reduce volatility
  • USDCAD still bid

By Michael O’Neill

Mr Toad’s Wild Ride is Disneyworld’s version of an amphibian driving a motor car through the English countryside. The Greek version is scarier. The far-left leader of the Syriza Party, AlexisTsipras, is now the new Greek prime minister who is poised to steamroll bondholders throughout the Eurozone.

“Stick your Austerity in your Posterior” is the new rally cry for millions of Greek citizens fed up with what was described by Yanis Vardoulakis (rumoured to be the next Greek finance minister) to the BBC as “fiscal water-boarding policies”. EURUSD plunged on the news falling from 1.1250 to 1.1098 in Asia. The drop was exaggerated due a lack of traders and liquidity as both Australian and New Zealand FX markets were closed. The move was fully retraced in Europe.

New times for Greece (and Europe) with Syriza now in charge: Pic: Syriza.gr

USDCAD outlook

The Canadian dollar hasn’t recovered from Canadian central bank governor Stephen Poloz’s version of forward guidance – that is guidance that occurs forward of an action. Interestingly, a number of senior Canadian bank economists who before last Wednesday believed that the Bank of Canada was in “rate hike delay” mode until 2016, are now pencilling in another rate cut. That rate cut risk is providing additional support to USDCAD. A lack of Canadian data releases this week (until Friday) leaves USDCAD at the mercy of US dollar direction and cross activity.

Wednesday’s Federal Open Market Committee (FOMC) rate decision may prove to be anti-climactic, especially since there isn’t a press conference scheduled. Anticipation of a bland, patient statement may lead to US dollar selling versus the majors and the Loonie would benefit. There is still a lot of room for a correction while leaving the USDCAD uptrend intact.

USDCAD technical outlook

The intraday USDCAD technicals are bullish while trading above 1.2320 and that level is being tested now. A decisive break could extend losses down to 1.2310. The medium-term outlook is bullish with the move above the 76.4% Fibonacci retracement level (1.2200) of the 2007-2009 range projecting a 100% retracement to 1.3065.

Chart: USDCAD four-hour highlighting large gaps between uptrends

Source: Saxo Bank

WTI oil trend remains down

Reuters is reporting that the secretary general of Opec is suggesting that oil prices may have reached a bottom which managed to put a floor under this morning’s drop in WTI at $44.20 and lead to a bounce to $45.30. However, the WTI downtrend from the beginning of December remains intact while trading below $47.85/bbl

Chart: WTI 4-hour

Source: Saxo Bank

Key US data releases

Tuesday: December Durable Goods Orders (Forecast 0.5%, ex transportation 0.6%). The market will be looking at this data to support expectations of a rebounding US economy. However, the FOMC rate decision on Wednesday will largely negate the impact if the data is close to consensus.

Tuesday: January Conference Board Consumer Confidence Index (Forecast 95.0 vs. previous 92.6) Lower oil prices and decent job growth will drive the index higher.

Wednesday: Federal Reserve Open Market Committee statement.

Friday: Q4 Real GDP (Forecast 3.4%) A consensus result or higher should provide the US dollar with support as the timing of a Fed rate hike could get adjusted.

Key Canadian data releases

Friday: November GDP (Forecast 0.0%, Vs. October 0.3%, month over month). This data is likely to have minimal impact, unless it is well below the forecast. Last week’s BoC actions essentially made this GDP number worthless and it is historical data.

– Edited by Clare MacCarthy

Michael O’Neill is an FX consultant at IFXA Ltd

A volatile end to a volatile week 23Jan15

A volatile end to a volatile week

Michael O’Neill

FX Consultant / IFXA Ltd


  • Today’s US data appears sluggish
  • Aftershocks from ECB still shaking FX
  • Canadian CPI supports BoC actions.

By Michael O’Neill

A volatile week is ending in a fairly volatile manner as G7 traders attempt to position for the next moves while simultaneously trying to protect profits. US dollar sentiment is bullish, but it has been bouncing erratically against most of the majors ahead of next week’s key events.

ECB aftershocks continue to shake up FX

If Thursday’s European Central Bank announcement of a quantitative easing programme was an earthquake, it would have been in the magnitude of 9.5 on the Richter scale. The after-shocks are continuing to shake up the FX markets today as the US dollar has made impressive gains across the G10 spectrum (with the exception of JPY). EURUSD continues to drive lower with parity looking like a reasonable objective.

The markets are still attempting to digest and analyse the details of the QE ECB style while simultaneously concerned about the rising probability of the anti-austerity Syriza party forming the next Greek government.

Supporters of Greece’s anti-austerity Syriza party rally in Athens. Photo: Oli Scarff Getty

Greece isn’t the only worry. The death of Saudi Arabia’s King Abdullah has raised worries over the stability of Saudi Arabia, their American relationship and oil pricing.

CPI vindicates Bank of Canada

Canadian CPI data did not disappoint those looking to be disappointed – it was bad. And it makes Wednesday’s surprise Bank of Canada rate cut a tad more palatable. The month-over-month, non-seasonally adjusted number was minus 0.7% while the year-over-year print was 1.5%. Both were lower than expected.

Any negative reaction to this data was offset by the better than expected Retail Sales report (Actual 0.4, ex-autos 0.7% vs. minus 0.2% and ex-autos 0.1%).

USDCAD retreated from 1.2450 down to 1.2375 but has since bounced to 1.2410.

Change in Canada CPI

Source: Statistics Canada

Was a currency devaluation the goal behind the BoC action?

The BoC press release for the rate cut decision stated that “this decision is in response to the recent sharp drop in oil prices, which will be negative for growth and underlying inflation in Canada”.

A sceptical person may conclude that what the BoC was really saying was “this decision is in response to the sharp drop in G7 currencies against the US dollar which would be negative for Canadian economic growth due to Canadian exports becoming less competitive”.

Whatever the real reason was, the BoC is not unhappy with the fact that the Canadian dollar has lost 4% this week and 6.6% in the past month.

USDCAD 30 minute

Source: Saxo Bank

The week that was

It was a week of flash bangs, shock and awe and fireworks, and that was just from the Bank of Canada. Mario Draghi proved himself to be the “little engine that could”, managing to pull the European Central Bank – including a reticent Germany – into a massive quantitative easing program.

Monday’s US Martin Luther King Day holiday managed to dampen trading activity in North America but Asia and Europe had their moments. The dust still hadn’t settled from the Swiss National Bank’s decision to pull the floor out from under the EURCHF 1.2000 peg and traders fretted about the looming ECB meeting and the January 25 elections in Greece.

Tuesday started with a barrage of Chinese economic data. China’s reported 7.3% year over year GDP growth got mixed reviews. At the end of it all, both AUD and NZD lost ground. The Americans returned to their desks and promptly bought dollars, with the kiwi and the loonie the biggest victims.

Wednesday kicked off with the Bank of Japan’s Monetary Policy announcements which proved to undermine USDJPY. Sterling hogged the spotlight in Europe on the Bank of England minutes and the labour report. The switch to a unanimous decision to leave rates unchanged rather than have two dissenters gutted GBPUSD.

Then it was the Bank of Canada’s turn. The announcement of a quarter-point cut in the overnight rate confirmed Canada’s entry into the Currency Devaluation Club. USDCAD soared from 1.2065 to 1.2390 in minutes.

Thursday, the ECB unleashed a massive and arguably open-ended QE program which managed to kick the legs out from under an already weak EURUSD and roil FX markets globally.

The week that will be

Monday’s Australian Day holiday will certainly impact FX liquidity at the start of the week which would be a major shortcoming if the Greek elections result in a massive win for the anti-austerity Syriza party. For EURUSD traders, forget “where’s Waldo?”, as it will be “where’s the bid?

Tuesday’s action should be data driven with UK GDP, US Durable Goods, CPI and New Home Sales all due. Strong US data will underscore the economic divergence between the US and the rest of the G7.

Wednesday is another “Central Bank Day”, but not until late in the New York afternoon. The Federal Reserve Open Market Committee rate decision and press conference is followed a few hours later by the Reserve Bank of New Zealand’s interest rate statement. That will add the nitro to the glycerin.

Thursday will be all about dealing with the fallout from the FOMC and RBNZ decisions, and Friday will be very interesting. Eurozone CPI, US GDP and the Chicago Purchasing Managers Index will compete with month end portfolio rebalancing flows and end of week position adjustments.

— Edited by Michael McKenna

Loonie devalued and Poloz is comforted -22Jan15


Loonie devalued and Poloz is comforted

USDCAD Open 1.2325-30 Overnight Range 1.2317-1.2373

FX markets were a tad skittish in Asia but rather sedated in Europe as they await Mario Draghi’s version of QE.

The self-proclaimed “open and transparent” Bank of Canada made a sneaky and unexpected rate cut yesterday. The governor and former Export Development Corporation head honcho surveyed the short term panic in the domestic markets and ‘Harrumphed” that “he was comforted that the possibility of a rate cut had begun to emerge in markets over the last couple of weeks” . It was his Pontius Pilate moment as he washed his hands

Really? It appears that when your head is firmly inserted into a narrow, dark orifice, the fact that domestic bank economists and strategists that were pushing out the timing of a BoC rate increase, is the same as thinking of a rate cut.

On another note, when the BoC announced the rate cut, USDCAD soared nearly 0.200 points. Part of the reason for the that spike is that at least 2 major Canadian FX banks stopped quoting prices until they knew “what the heck is going on” (heck was spelled with an “F”).These prices feed the myriad of third party FX trading platforms. Wall Street is famous for its “Masters of the Universe”, Bay Street has the “Wussies of the World”. When the going gets tough-turn off the machines!

The intraday USDCAD technicals are pretty much useless. The short term technicals are bullish while trading above 1.2000 aided by the break above the 76.4% Fibo retracement of the 2009-2011 range which was at 1.2200. That break opened up a straight shot to 1.2405 which is guarding resistance at 1.2490-1.2510. The steepness of yesterday’s move warns that corrections lower can be large while maintaining the uptrend.

For today, USDCAD support is at 1.2280, 1.2240 and 1.2200. Resistance is at 1.2380, 1.205 and 1.2500

Today’s Range 1.2280-1.2380