US adds jobs, Canada loses them, Loonie suffers
FX Consultant / IFXA Ltd
• Weak Canadian data plucks Loonie’s feathers
• FX traders display patience with NFP data
• Top tier data void ahead
By Michael O’Neill
Today’s US nonfarm payrolls report (NFP) failed to deliver decisive evidence to test the patience of the Federal Open Market Committee (FOMC). Instead, it merely provided another check mark under the “employment improving” heading on the economic health checklist.
The Canadian employment report was the opposite of the US data, posting a loss of 4,300 jobs and USDCAD went bid.
FX volatility may be dialled back next week. The lack of key data releases from the US next week will shift the trading spotlight to the European Central Bank’s monetary policy meeting on January 22 and the Greek elections on January 25.
US jobs report comes out tops but Canada just can’t cut it. Photo: iStock
USDCAD is likely to print 1.200 next week fuelled by today’s weak economic data, the prospect of additional oil price weakness and perhaps even from diminished demand for EURCAD selling.
It wasn’t a banner weak for the Loonie. Canada shed 4,300 jobs, Canada’s merchandise trade deficit widened as exports shrunk, a disconcerting development for the Bank of Canada mandarins. The plunge in oil prices has raised questions on the Federal government’s ability to deliver a budget surplus in 2015, as promised. Today’s better-than-expected US employment report increases the prospect for higher US interest rates, sooner, while the Canadian interest rates outlook suggests stagnation for longer.
USDCAD Technical outlook
The short-term USDCAD technicals are bullish while trading above the 1.1640-60 area. The intraday technicals are bullish above 1.1820 and supported by todays break of the minor downtrend at 1.1850. A move below 1.1820 will lead to 1.1790 and then 1.1760.
Source: Saxo Bank
Loonie could lose EURCAD selling support
The prospect of US style quantitative easing by the European Central Bank (ECB) has crushed EURUSD and EURCAD in the past few months and even though the beleaguered single currency is already at 9-year lows the prevailing sentiment is that it has further to drop. The EURCAD downtrend which began on the break of the 1.4850 level ended a 12-month rally. That downtrend remains intact while trading below 1.4140.
However, the 50% Fibonacci retracement level at 1.3840 needs to give way to extend losses to 1.3430. Failure to break the 50% level may lead to 1.3840-1.4240 consolidation. A rally in EURCAD in the face of slumping oil prices would be very bullish for USDCAD.
Source: Saxo Bank
The week that was
Those of us expecting a sleepy week to slowly ease into the grind of FX trading following the holiday season were rudely awakened. The first full week of trading in 2015 was active from the start and EURUSD was the favourite whipping boy.
Monday started with EURUSD tanking in Asia after a Der Spiegel magazine story reported that Germany was "ok” with Greece exiting the Eurozone. Sure trading was thin, but since 1.2000 gave way, it hasn’t been seen since. Global equity indices fell and WTI dropped through the $50/bbl level.
Tuesday saw continued volatility as soft oil prices beat up the Loonie and NOK. USDJPY traded choppily in a 118.00-119.00 range in part due to JPY demand against EUR and GBP.
Wednesday’s Asian session was notably volatile for EURUSD and that was before the Eurozone inflation data came out. Eurozone inflation printed a negative 0.2% headline CPI for December, year over year. Fortunately the core number was slightly higher. The North American session was fairly tame as markets awaited the release of the Federal Open Market committee meeting minutes from December. They had little lasting impact.
Thursday saw equity markets recover their earlier losses but EURUSD couldn’t say the same thing after printing 1.1753. The Bank of England meeting lived up to its “non-event” billing and cable remained soft.
The week that will be
FX markets may be a tad calmer next week, especially in the early going but volatility may pick up as the week winds down.
Monday and Tuesday trading won’t be driven by economic data, although China New Loans and Trade data releases may stimulate some action in Asia on Tuesday. Tuesday’s European session gets a look at UK CPI and PPI data and then the well goes dry for the rest of the day.
Wednesday won’t be anything special and even the release of US Retail Sales won’t provide much incentive.
Thursday starts with the Australian employment report and then there is nothing until the US session starts.
Friday could be volatile if traders have survived the tedium of the previous four days. The Eurozone CPI data may reinforce the sentiment that the ECB must launch a US style quantitative easing programme and undermine the euro. If not, a nasty correction could occur. US CPI continues to be mostly ignored but US Industrial Production and the Michigan Consumer Confidence report could generate some FX activity.
— Edited by Clare MacCarthy
Michael O’Neill is an FX consultant at IFXA Ltd