Twin focus for FX: Greece and FOMC
FX Consultant / IFXA Ltd
- 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
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.
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