End of Week-May fades to black, Loonie just fades 29May15


May fades to black, Loonie just fades

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • Soft Canadian GDP data clips Loonies wings
  • US data releases are a wash
  • Month-end flows churn FX markets

By Michael O’Neill

It has been an active day in FX markets with US dollar selling due to portfolio rebalancing needs evident throughout the morning. Despite the intraday flows, the US dollar has strengthened across the board against the G-10 spectrum, with the exception of the Swiss Franc. The dollar will kick off the last month of the first half of 2015 next week with US data including nonfarm payrolls competing with the Reserve Bank of Australia and the European Central Bank for attention.

BoC is befuddled, Loonie traders as well

The Bank of Canada (BoC) interest rate statement painted a picture of a central bank not sure if the economy is coming or going. On one hand, they believe that inflation is tracking on pace with their previous guestimates. On the other hand, the express some concern that the Canadian dollar has strengthened.

It remains unclear, what kind of picture of the Canadian economy its Central Bank wants to paint. Canadian nature is beautiful in any case. Photo: iStock

The fact that the statement even mentioned the currency convinced some analysts that the statement was doveish. Pshaw! The currency strengthened in step with the rally in oil prices and as long as that relationship holds, is unlikely to provoke a response from the BoC.

The Bank is content to rely on a sustained US recovery to reinvigorate the domestic economy. In the meantime, USDCAD direction will continue to be at the mercy of general US dollar sentiment and oil prices.

Loonie tarred on very weak GDP report

Canada’s Q1 GDP shrunk by to negative 0.2% vs expectations of a rise of 0.2%, month over month. The Loonie was tarred (it was already feathered) and USDCAD spiked to 1.2512 from 1.2440 on the news.

The magnitude of the move is a tad surprising considering that the number was expected to be weak due to the oil price collapse, lousy weather and a lack of US economic growth. It’s also stale data which should have already been reflected in the price. Having said that, today’s Canadian GDP data is still ugly.

Chart Canada GDP

Source: Statistics Canada

US GDP underwhelms

The US data was a shade less than good. In fact, it was mixed at best. Consumer spending was slower than expected and business spending declined by 2.8%.

The fact remains that the US economy is in better shape than the Canadian economy and expected to rebound sooner and faster providing all the ammunition that the Fed needs to raise rates in H2. In contrast, the Canadian economy is going nowhere with traders leery of another down move in WTI. These combined forces will limit short term USDCAD losses

USDCAD outlook

The Canadian dollar is unlikely to have a good week to kick off the month of June. Today’s surprisingly poor GDP report may be a sign that the BoC’s optimism, evident in the Stephen Poloz speech last week, was misguided and no reason to buy Canadian dollars.

A Greek tragedy? Photo: iStock

Next week’s Canadian trade data will need a big surprise to the upside to counter the effects of US data if the expected economic recovery south of the border is reflected in the results. US data, including Friday’s nonfarm payrolls report, combined with the European Central Bank (ECB) meeting and the real-life Greek tragedy will ensure demand for US dollars against the majors and the Loonie by default.

USDCAD technical outlook

The intraday and short term USDCAD technicals are telling different stories. The intraday technicals are bullish, with a steep uptrend rising from the May 11 low which remains intact while trading above 1.2400-20. So far, further gains have been capped by resistance in the 1.2540-50 area. If broken, a return to the 2015 peak of 1.2820 is likely.

The short term technicals tell a different story. USDCAD is in a downtrend from the 1.2820 area with a series of lower highs containing gains. As long as 1.2530-60 contains the rallies, the risk is for additional USDCAD weakness back to the 1.2340-80 zone.

Chart: USDCAD 4 hour with intraday and short term trend-lines noted

Create your own charts with Saxo Trader click here to learn more.
Source: Saxo Bank

Cross purposes –CADJPY and EURCAD

The Canadian dollar may derive a bit of support from CADJPY demand. The intraday CADJPY technicals are bullish while trading above 99.10 representing an uptrend line from the end of March. Bullish USDJPY technicals supported by the widening of US and Japanese interest rate spreads and the risk of additional stimulus measures by the Bank of Japan are threatening to drive CADJPY through psychological resistance at 100.00 toward 102.50.

Chart: CADJPY Daily with Fibonacci retracement levels

Source: Saxo Bank

At the same time, EURCAD is also looking to rise. A breach of major resistance at 1.3775 targets 1.4000 which could occur if next week’s US data is disappointing or on positive Greek debt developments. If so, it would offset the CADJPY demand.

Chart: EURCAD daily with uptrend and resistance

Source: Saxo Bank


The week that was

When the big dogs are away, there’s no one left to play, which pretty much summed up Monday FX markets. Holidays in much of Europe, the UK and the US made for a dull session for those traders at work.

Tuesday was much better in terms of trading activity which is a given when all markets are open. A delayed reaction to Friday’s US CPI report and another Greece threat to default had traders anxious to sell US dollars; and they did, right across the board. USDJPY was particularly in vogue although no one could cite a specific reason. A string of solid US data releases including Durable Goods helped the US rally during the New York day.

USDJPY continued to climb on Wednesday, achieving levels not seen for eight years while the rest of the majors were content to consolidate Tuesday’s moves. Greece headlines continued to stoke markets with Bloomberg reporting progress on a Greece deal. The Bank of Canada left rates unchanged and some analysts believed the statement to be a tad doveish which didn’t do the Loonie any favours.

Thursday saw US dollar gains in Asia and Europe against AUD, JPY, GBP and CAD get reversed in a spirited New York session. In Asia, AUDUSD got spanked on a poor capex report and USDJPY touched a December 2002 peak. In Europe, a weaker than expected UK Q1 GDP report drove cable lower. Those moves were reversed during the New York day, in part due to anticipated selling of US dollars for month end portfolio rebalancing needs.

The week ahead

Those looking for the summer doldrums, won’t find them this week. The week ahead gets a later start than usual due to New Zealand traders off celebrating the Queen’s birthday (Elizabeth II), another UK monarch’s birthday ignored by the UK. But when it finally starts it will be frisky.
Chinese data including the HSBC Manufacturing PMI will give the commodity bloc traders something to chew on which will be followed by a rash of Eurozone and US PMI data.

The Reserve Bank of Australia’s interest rate announcement and statement will entertain Aussie traders on Tuesday while German employment data will be the focus in Europe.

Wednesday’s Opec meeting and the European Central Bank (ECB) statement will vie with US data to dictate dollar direction.

It’s the Bank of England’s turn in the spotlight on Thursday but by then traders will be fixated on Friday’s US employment data.

— Edited by Clemens Bomsdorf

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US data trumps Canadian data, loonie sinks 22MaY15


US data trumps Canadian data, loonie sinks

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • US dollar rallies on data and short squeeze
  • Short week ahead due to many Monday holidays
  • Loonie and oil appear to be fair-weather friends

By Michael O’Neill

The US dollar is ending the week on a strong note having rallied strongly against the G10 currencies. Earlier, losses in Asia and Europe were recouped (and then some) when domestic CPI data came in as forecast. The data served to reduce another barrier to the Federal Open Market Committee raising interest rates, with many analysts expecting a move in September.

Loonie’s feathers get plucked

USDCAD bears are feeling a little pain following the post-data dollar rally which triggered stop losses above 1.2260 even though the Canadian data were positive.

USDCAD is marching higher and has decimated the downtrend line from March and appears to be setting its sights on the previous multi-month floor that contained US dollar weakness from mid-January to mid-April. That floor, located in the 1.2340-75 area, will now become the next ceiling (which also represents the 50% Fibonacci retracement level of the March-May range).

The question that arises now is whether today’s move is sustainable if – and it’s a big if – WTI oil prices remain above $57/barrel.

Investors trading USDCAD always need to keep an eye on crude. Photo: iStock

In addition, today’s Canadian data were far from being negative. The inflation number is close to the Bank of Canada’s forecasts while the retail sales data suggest that consumers are opening their wallets.

It is an election year (with a vote expected around October), implying that next week’s BoC interest rate statement will emphasize the positives.

USDCAD technical outlook

The intraday USDCAD technicals are bullish while trading above 1.2190. Today’s decisive break of the March downtrend line in the 1.2240-60 area opens up scope for a visit to the 1.2350-75 area.

This area represents major support for USDCAD from mid-January to mid-March and, when combined with the 50% Fibonacci retracement of the 2015 range, should prove to be a formidable level of resistance.

USDCAD daily with resistance noted

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Source: Saxo Bank

Loonie and oil taking a time out

The Loonie and USOil (WTI) correlation appears to have taken a timeout during the month of May. USOIL has been trapped within a $57.70-$62.20/b trading band with a modestly bullish bias.

At the same time, USDCAD appears to have ignored the firmer oil prices and rallied as well.

The outlook for oil prices in the short term is about as clear as barrel of crude. On one hand, oil bears cite storage capacity constraints, ongoing over supply due to US shale production and Opec’s unwillingness to curtail output in a slow global growth environment as key factors pointing to lower prices ahead.

Oil bulls believe that the current reduction in US rigs, the short-shelf life of a shale well (high production early, then greatly reduced output), escalating tensions in the Middle East, and the US driving season will keep the price firm.

A MarketWatch story yesterday highlighted five scenarios for oil prices as seen below:

Source: MarketWatch

The week that was

It was a short week for Canadians and a bit of a surprising onefor traders, especially US dollar bears.

Monday started off quietly in Asia and Europe but showed signs of life during the New York session. Negative sentiment toward s a Greek debt resolution combined with a report from the San Francisco Fed suggesting that GDP may be underreported lifted the dollar across the board.

EUR, CAD and Kiwi shed nearly 1.3% each.

And many headlines were built around the kiwi’s flightless nature. Photo: iStock

Tuesday’s session was lively in all time zones. The Reserve Bank of Australia minutes appeared to have left the door open to further easing and AUDUSD popped. Not to be out done, the Reserve Bank of New Zealand tweaked its inflation forecasts higher and the kiwi took flight.

Comments by a European Central Bank official about front-loading bond purchases sank EURUSD during the European session and that theme continued throughout the New York day. Concern that Wednesday’s release of the FOMC minutes could be viewed as hawkish helped to underpin the dollar.

Wednesday was fairly quiet in Asia although USDJPY traded higher. European traders were mostly sidelined awaiting the FOMC minutes but aterling saw a little excitement on what were seen to be hawkish Bank of England minutes.

The US dollar drifted higher against the majors in the New York session ahead of the FOMC minutes release, which ulktimately proved underwhelming. The Fed won’t be hiking in June and remains data-dependent.

Thursday didn’t deliver the same sort of excitement, although in Europe cable traders went for a 0.0150 point ride to the top on a stellar retail sales report. EURUSD gains in Europe were given back during the New York session and the US data were mixed.

The week ahead

The week ahead will be another short one. USDJPY traders may see a bit of volatility with the release of Japanese trade data but any excitement will dissipate rapidly as there will be very few traders who give a whit.

(And Whit Monday holidays in France and Switzerland, coinciding with the UK Spring Bank Holiday and Memorial Day in the USA will ensure a quiet day.)

For many, Tuesday is the official start to the week. Traders will be greeted with the release of the ever-volatile US durable goods report as well as a slew of data.

The Bank of Canada interest rate decision and statement will entertain USDCAD traders on Wednesday and the week will end with a bang as key US GDP data and the Chicago PMI report (plus Canada GDP) compete for attention with the usual month-end portfolio rebalancing flows.

Sprinkled throughout the week will be speeches from various Fed members.

— Edited by Michael McKenna

BoC says: ‘We don’t know, do you?’ 20May15


BoC says: ‘We don’t know, do you?’

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • Don’t bet on hawkish FOMC minutes
  • BoC is uncertain, shouldn’t you be as well?
  • USDCAD downtrend is still intact

By Michael O’Neill

The Federal Open Market Committee minutes will be released in a few hours. There is a school of thought suggesting a risk that the minutes will be viewed as hawkish. The rationale is that the discussions about the outlook for inflation and growth could provide a better sense of timing for lift-off. This has helped to sustain the US dollar’s recent bid tone this week.

The April 30 statement delivered what the market expected – a dovish statement reiterating that rate decisions will be data dependent. To believe that the FOMC deliberations implied a different message than what was contained in the statement is akin to believing in a politician at election time.

The only certainty is uncertainty

The Bank of Canada’s governor, Stephen Poloz, in a speech to the Charlottetown, PEI, Chamber of Commerce, declared:

“new companies tend to be more productive than companies that have gone out of business”

The Wizard of pol-OZ came out from behind the Ottawa curtain to deliver a speech entitled “The Way Home”. A more accurate title would have been “I don’t know, do you”?

His speech was peppered with references to uncertainty:

  • “The implications for income and investment, and the adjustments they’re causing across sectors and regions, may take years to work themselves out.
  • "Of course, I must underscore how uncertain the outlook is."
  • “All of this has certainly made it more challenging to distinguish the trend from the temporary.

Despite all his worries of uncertainty, Poloz reiterated the BoC’s view that growth will rebound partially in Q2. However, since he did not quantify “partially”, what is he really saying? Q1 GDP growth is forecast to be 0.0%, so would a Q2 number of 0.5% allow the BoC to say they nailed the forecast?

The Bank remains concerned about inflation and still expects inflation to be a sustainable 2% by the end of 2016 although that number is probably worthless, considering that he went to great lengths to hedge his forecast.

According to Poloz: "Inflation is a noisy indicator. All sorts of things can affect it on a month-to-month basis. Our task of judging the underlying trend of inflation has been complicated by the events of the past year. We have the oil price shock, which is pushing inflation down, and the weaker Canadian dollar, which is pushing inflation upward. On top of these, a number of one-off factors have been affecting inflation."

Canada CPI

Source: Stats Canada

Despite all this uncertainty, Poloz says that the positive forces already identified will “dominate the picture and have us back on track to reach full capacity around the end of 2016.”

Is that statement meant to appease the Ottawa mandarins who may have resented his prior depiction of Q1 GDP as “atrocious”, especially in an election year?

He closed his speech by stating that “By being transparent about the signs we’re watching, we are trying to help financial markets make their own judgments about the economy’s prospects,” What he was really saying to financial markets was “your guess is as good as mine”.

USDCAD outlook

Traders won’t get much insight into the domestic economic fundamentals from Friday’s release of March CPI (forecast core 0.1%, month-on-month) and retail sales (0.3%, ex-autos 0.1% m/m).

Poloz described the monthly inflation data as a “noisy indicator” and since a soft reading is expected, it should have minimal impact. A weak retail sales number should also be a non-event as it has already been discounted in the weak Q1 GDP data.

That leaves next Wednesday’s BoC interest rate decision and statement to provide the next piece of the puzzle. There is zero risk of a rate move leaving the statement to provide some direction.

Was yesterday’s Poloz speech a prelude to an optimistic outlook touting a partial recovery?

USDCAD movements will mirror general US dollar direction against the majors with a bias for further gains on anticipation of month end demand for US dollars, softer WTI oil prices and improving US data.

Can anyone shine a light on Canada’s economic fundamentals? Photo: iStock

USDCAD technical outlook

The intraday USDCAD technicals are bullish while trading above 1.2140 looking for a break above resistance in the 1.2240-60 area to extend gains to 1.2360. Yesterday’s break of resistance in the 1.2180-90 zone suggests that a short-term bottom is in place at 1.1950.

However, the short-term downtrend from the end of March remains intact and until it is broken, the current rally is merely a correction. A move back below 1.2140 would put the focus back on 1.1950.

USDCAD 4-hour with short term downtrend highlighted

Source: Saxo Bank

– Edited by Oliver Morrison

Mad Max runs over USD bears on Fury road -15May15


Mad Max runs over USD bears on Fury road

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • FOMC minutes and US CPI will be the focus next week
  • Cross CAD demand and oil drive the Loonie
  • Strong Canadian data ignored

Just the kind of terrain that USD has been ‘enjoying’ this past week. Photo: iStock

By Michael O’Neill

Mad Max-Fury Road is the blockbuster movie opening this weekend. US dollar bears can be forgiven for thinking Max was already on the highways, as weak short-dollar positions became roadkill today.

The US dollar had a decidedly mixed week. Sterling led the gainers rising over 2.0% followed by AUD, NOK and EUR while JPY remained flat and Kiwi, CHF and SEK lost ground. Traders are looking ahead to Wednesday’s Federal Open Market Committee minutes hoping for some insight into the members mindset around rate liftoff.

Breach or a blip

The USDX dipped below the medium-term uptrend line dating back to July 2014 when it traded below the 93.60-80 area but the move was not sustained and the index is currently trading at 93.87. Arguably, the breach is just a blip and the uptrend remains in place. The intraday downtrend is still intact while under 94.10.

A decisive break above 94.50 would argue that a short-term bottom is in place and allow for some 93.20-95.30 consolidation.

USDX daily with uptrend line

Source: Saxo Bank

Caught in the crossfire

The Loonie is a sitting duck (well, Loon) caught in the crossfire between CAD demand from broad-based US dollar selling and CAD selling against GBP and EUR. USDCAD bulls are finding solace in both bullish GBPCAD and EURCAD technicals and warning signs that the March oil rally may be coming to an end.

GBPCAD may be the lead

The intraday GBPCAD technicals are bullish having snapped the downtrend which was in place since the end of February. Price action above the 1.8680-90 area has hung a target on the 1.9020 zone which represents the 61.8% retracement of the February-April 2015 range.

GBPCAD daily with Fibonacci

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Source: Saxo Bank

EURCAD may be the key

Meanwhile, EURCAD is poised to add to the Canadian dollar’s woes on a break of the 1.3780 zone representing both multi-tops since March as well as the downtrend line from the beginning of February. If broken, EURCAD will rally to 1.4120.

EURCAD daily with resistance and target

Will EURCAD add to the Canadian dollar’s woes? Source: Saxo Bank

WTI oiling the crosses higher

USDCAD has lost ground in lockstep with WTI price gains since the middle of March. Today, there are signs that the oil price rally is under some stress.

The WTI uptrend since March is starting to break down with the move below $59.70/barrel which if it continues should lead to a test of support at $54.20/b. News that the Energy Information Administration reported worldwide oil stocks rising to the tune of 1.95 million b/d this quarter supports a lower price.

USOil daily with uptrend line breaking down

Source: Saxo Bank

USDCAD outlook

USDCAD trading will remain at the mercy of general US dollar direction against the G-10 currencies, cross demand particularly against EUR and GBP and the ebbs and flows of oil prices.

Today’s better than expected Manufacturing Shipments (Actual 2.9% vs. 1.2% forecast) failed to inspire Canadian dollar buyers even though it completely reversed last month’s loss. That is probably because oil prices have fallen further this morning and are currently sitting at $59.20/b.

Profit-taking ahead of the Canadian long weekend is likely another factor underpinning this morning’s demand.

Canadian Manufacturing Sales

Source: Statistics Canada

Next week, Bank of Canada Governor, Stephen Poloz delivers a speech in PEI, followed by a press conference. He is always a wild card and the fact that there is a post-speech press conference ups the ante. There isn’t any major Canadian data until Retail Sales and CPI at the end of the week which suggests that the current 1.1940-1.2140 range should remain intact.

USDCAD technical outlook

USDCAD bears tested long-term support this week and it held resulting in a bounce to the 1.2045-55 level this morning. This is a key, short-term level, representing the downtrend line from April 13. A strong break above this area would indicate that a short-term bottom is in place and leads to the 1.2130-60 area.

Longer term, US dollar bears are noting the descending triangle formation evident in the April-May range. A decisive move below the base would open up another leg of the USDCAD downtrend

USDCAD daily with descending triangle noted

Source: Saxo Bank

The week that was

This week was unsettled. It was a mixed bag of data, policy, Greece and a retrospective look at long-standing trades without anything being decided.

On Monday, The Peoples Bank of China decided to cut rates by ¼ point to give its economy a boost. The move didn’t help Kiwi. It got its feathers plucked by various domestic banks calling for further reductions in the Official Cash Rate.

EURUSD weakness in Asia turned into EURUSD strength in Europe, helping fuel minor optimism around Greece debt payments. The Bank of England left rates unchanged. New York FX markets were tame for most of the day.

Tuesday FX was a bit more interesting. EURUSD walked slowly higher in early European trading and suddenly broke into a run without a clear catalyst although many pointed to the large selloff in global bonds as a reason. The New York session didn’t provide much direction and EURUSD closed near where it opened.

Wednesday was lively in Asia, livelier in Europe and bordering irrational in New York. It started in New Zealand with Kiwi traders taken aback by what was seen as a less doveish-than-expected Financial Stability Report. NZDUSD rallied, managing to overcome some verbal intervention by the Reserve Bank of New Zealand governor.

Cable stole the limelight in Europe, trading choppily, following downward revisions to growth forecasts. When US Retail Sales rang up “No Sale”, no one wanted US dollars and the festivities began. EURUSD cracked some key technical resistance levels and hit prices not seen since February with the other majors making similar gains. Long-term dollar bulls were very nervous.

Thursday saw some consolidation which was to be expected with a lot of Europe closed for Ascension Day. US data was mixed. Jobless Claims were better than forecast but PPI was not. Traders didn’t know whether to buy or sell on the news so they did neither.

New York cabbies are used to a bit of irrationality, markets may be less so. Photo: iStock

The week that will be

The week that will be starts on Tuesday in Canada. Canadians will be celebrating the “official” start to summer, under the guise of marking Queen Victoria’s birthday, a former monarch of the UK where her birthday is ignored.

The Reserve Bank of Australia minutes will highlight the Asian session on Tuesday followed by a rash of European and UK data. Wednesday and Thursday provide traders with the opportunity to dissect policy deliberations by the FOMC and the European Central Bankin the form of FOMC minutes and the ECB Monetary Policy meeting accounts on Thursday.

The week will end with US CPI, Canada CPI, Retail Sales and a speech by the Bank of England’s Mark Carney.

Stock, bond and dollar bears (oh, my!) 12May15


Stock, bond and dollar bears (oh, my!)

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • Loonie rising on dollar retreat
  • Data drought driving markets
  • The bear is back, and not just in bonds

By Michael O’Neill

FX traders are perplexed. Yesterday’s US dollar strength has given way to weakness. The initial optimism from Sunday’s People’s Bank of China rate cut, which was seen as a step to stimulate the Chinese economy and boost global growth, has been forgotten.

Today, of course, it is pessimism fueled by a global bond plunge. One school of thought holds that diminished deflation risks in the Eurozone due to the European Central Bank’s quantitative easing programme, is driving bond sales. If so, why today? Whatever the reason, the bond selling has been infectious, spreading to European and US equity markets as well as the US dollar.

Coincidentally, the heightened anxiety in the bond market is occurring in a week with a distinct lack of top-tier US data releases. Last Friday’s nonfarm payrolls report failed to live up to the hype and there wasn’t any fresh insight to provide ammunition to either rate bulls or bears.

Expectations for tomorrow’s retail sales report is likely to suffer the same fate. Auto sales are forecasted to be sharply lower, dragging the headline number down (April forecast 0.2% versus March actual 0.9%; April forecast ex-autos 0.5% versus March 0.4%).

Will the US auto industry beat the forecasts? Photo: iStock

The lack of major US data (other than retail sales) will ensure that skittish FX markets will be the norm for this week. Greek debt renegotiation headlines will keep EUR traders on their toes while ongoing fallout from the surprise UK Conservative party election win may fuel GBP demand against the US and CAD.

Dollar index looking for support

The USDX has been declining steadily since mid-April. Corrective rallies have been shallow and short-lived with a test of major support in the 92.60-70 area looking likely, although that level is being guarded by another layer of support in the 93.50-70 zone.

A sustained move above 95.30 would negate the downtrend and target 96.10.

Four-hour USDX with downtrend

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Source: Saxo Bank

The Russian bear is out of hibernation

The Russia/Ukraine hostilities have slipped below the radar for many FX traders. They haven’t gone away, though – they have just left the front pages of the business press. NATO accused Russia of building up forces on the Ukraine border and shipping additional hardware to rebels including tanks, artillery and ammunition.

US secretary of state John Kerry is in Sochi to meet with his Russian counterpart and then Vladimir Putin. It is hard to believe that any progress will be made. The Russian foreign ministry said: “We continue to underline that we are ready for cooperation with the US on the basis of equality, non-interference in internal affairs, and that Russian interests are taken into account without attempting to exert pressure on us.”

(The US, on the other hand, believes that it has the right to meddle in the affairs of nations anywhere in the world.)

As long as the Russia/Ukraine issue threatens the stability of Eastern Europe and threatens to suck the Western world into a quagmire similar to 1914, it is hard to see the sustainability of EURUSD gains

Oil rally springs a leak

Oil prices gushed higher overnight, taking out resistance at $59.90/barrel and touched $60.50/b before retreating. The rally may have been due to the widespread US dollar selling seen overnight.

The fact that it has retreated this morning (currently $59.74/b) and is currently below the $60/b pivot combined with the series of lower highs on the hourly chart suggests a test of the uptrend line from April 15 is likely. A break of the uptrend line would suggest further losses to $55.70/b.

Goldman Sachs released a report on Monday suggesting that the oil rally is unsustainable due to still elevated inventories and only a minimal decline in production which may have helped to cap today’s rally

USOil hourly

Source: Saxo Bank

Loonie flying in circles

USDCAD is likely going to attempt a test of support in the 1.1940-60 level in the next day or so having tried and failed to break higher on Friday and Monday. Broad-based US dollar weakness returned overnight as bond selling and retreating equity markets weighed on the greenback.

Tomorrow’s US retail sales data will provide some much needed but short-term direction. An upside surprise would test 1.2140 again while a poor report would put 1.1940 in play.

The intraday technicals are bearish while trading below 1.2060 with a break of 1.2000-05 pointed to 1.1940. The short term outlook is also bearish while trading below 1.2140. A break below 1.1940 leads to 1.1740, the 50% Fibonacci retracement level of the July 2014-March 2015 range.

USDCAD daily with Fibonacci levels

Source: Saxo Bank

Payrolls fizzles, oil drizzles and USDCAD is bid 8May15


Payrolls fizzles, oil drizzles and USDCAD is bid

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • NFP meets consensus forecast
  • Oil dips and USDCAD slips
  • Directionless week lies ahead

By Michael O’Neill

The highly anticipated US employment report has come and gone, leaving both bulls and bears unsatisfied. The report failed to deliver any clear direction and traders are now setting their sights on next week’s Retail Sales report. Meanwhile, oil continues to drift lower, giving USDCAD a bid.

Canadian jobs data disappoint

Canada posted a headline loss of 20,000 jobs in April (versus a forecasted loss of 2,500) which at first glance is rather ugly. Upon closer inspection, however, the losses were all in part-time jobs. Full time jobs increased by 46,900. This report is being viewed as negative.

Last month’s data were the polar opposite. The headline reported a gain of 28,700 for March, but it was all in part-time jobs. Full-time employment decreased by 28,200 and this report was received positively.

The point is that both reports are, in the words of Lisa Simpson, “meh” and should be ignored.

Change in full-time jobs, March versus April

Source: Statistics Canada/IFXA Ltd

Loonie dips as oil slips

The loonie/oil relationship was on full display this week. A weak US dollar against the majors, news that hedge funds were buying oil contracts and concern that Saudi Arabia bombing Yemen could disrupt oil shipping combined to drive WTI above strong resistance in the $60.00/barrel area.

When the US dollar caught a bid on Thursday as positions got adjusted ahead of Friday’s NFP report, oil traders suddenly remembered that there was no shortage of oil. That became more evident after a WSJ story reported that Iranian oil minister Bijan Zangeneh declared that if sanctions were lifted this year, Iran could be pumping 5.7 million barrels per day by 2018.

Suddenly, the $70/b forecasts looked a tad optimistic and WTI oil prices oozed back below $60/b.

Hourly oil and USDCAD

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Source: Saxo Bank

USDCAD outlook

The volatile Canadian employment report has come and gone and USDCAD traders can eagerly await… well, nothing. There is the Bank of Canada quarterly review on Thursday which may attract a bit of attention in the absence of anything else even remotely related to the domestic economic outlook, but it shouldn’t cause a ripple to FX traders.

That leaves the Canadian dollar’s direction tied to the coattails of oil prices and the ebbs and flows of US dollar sentiment. Wednesday’s US Retail Sales report may be the catalyst to jump-start the bullish USD bandwagon but it is unlikely to break the dollar out of its current ranges. If so, barring any major oil price moves, USDCAD should stick to last week’s range as well.

USDCAD technical outlook

The intraday USDCAD technicals are bearish while trading below 1.2160, and we are looking for a break below 1.2060 to retest support in the 1.1940-60 zone. A break above 1.2160 should extend gains to 1.2240.

Longer term, the sharp USDCAD rally in January left a large gap between 1.1940 and 1.2350. For the next three months, 1.2350 acted as major support, surviving numerous attempts to break below that level. That move finally occurred in mid-April and 1.2350 hasn’t been seen since.

Support has now shifted to the 1.1940-60 level, coinciding with a 38.2% Fibonacci retracement level of the 2014-2015 range. Until this area is decisively broken, USDCAD should trade within a wide 1.1950-1.2250 band.

USDCAD daily with expected trading band shown

Source: Saxo Bank


The week that was

What a week! For Japan, a Golden Week and for the rest, an NFP week. A quiet May Day on Monday morphed to mayhem on Thursday. In between, FX traders proved to be as fickle as an election promise, one day selling dollars and the next day scrambling to get them back.

Monday started with ugly April PMI data from China undermining AUDUSD (albeit briefly). European markets were jittery. Traders were both coming and going, trying to deal with Eurozone politics, economic data, fretting about the UK election, and Friday’s US NFP report.

Tuesday started with the Reserve Bank of Australia cutting interest rates by 0.25% which wasn’t much of a surprise, although the shift to neutral from an easing bias was. The US dollar spent most of the day under pressure following worse than expected merchandise trade data.

Meanwhile the ugly Canadian trade report appeared to be forgiven when oil broke through the $60/b resistance level and the Canadian dollar rose. Later in the day, a poor GlobalDairyAuction result drove kiwi lower.

The streets of Toronto might not be paved with gold, but they do appear

to march to the tune of oil at the moment. Photo: iStock

Wednesday saw a disappointing employment report sink NZDUSD and Golden Week holidays in Japan keep USDJPY range bound. European traders stewed about Greek debt negotiations and mixed PMI data while across the channel Thursday’s UK election fears held cable at bay.

The North American session was noisy. US ADP employment barely missed forecasts but that seemed to give traders an incentive to buy EURUSD and buy they did, taking it to 1.1370 from around 1.1230. A drop in oil prices caused USDCAD to bounce off of support.

It was another “thumping Thursday”. The previous day’s US dollar sellers became US dollar buyers when US jobless claims scored another print close to 15-year lows, oil prices corrected lower and Bund prices rallied.

EURUSD dropped to 1.1240 from 1.2350 and USDCAD jumped to 1.2160 from 1.2060. Very late in the day, after the NY close, a UK exit poll stating the Conservative party would win 316 seats drove GBPUSD from 1.5225 to 1.5440.

The week that will be

This week will start with the focus on the UK. The aftermath of the surprise Conservative majority and the Bank of England meeting will make for an interesting Monday among sterling traders ahead of Bank of England governor Mark Carney’s Wednesday speech.

Also on Wednesday is the US Retail Sales data release. It needs to surprise to the upside to maintain the positive momentum from today’s payrolls report. The balance of US data releases are second-tier leaving trading direction at the mercy of geopolitical news and Greece debt renegotiation headlines.

The Bank of Japan governor’s speech on Friday could return USDJPY to the spotlight as additional easing measures are still on the table.

— Edited by Michael McKenna

Despite dirty data, Loonie is dirt cheap 5May15


Despite dirty data, Loonie is dirt cheap

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • Loonie ignores weak data
  • Oil rally coincides with soft USDX
  • US and Canada employment pose risk

By Michael O’Neill

The Canadian Merchandise Trade report posted the weakest result on record (a CAD 3.0 billion deficit) and the Loonie didn’t flutter a feather, content to bask in the glory of WTI crude oil that has oozed through resistance at $60.00/bbl and appears to be heading higher. But for how long? That is the question and the answer will come on Friday with the Canadian and US employment prints.

The world cares far less about Canadian jobs than US ones. Photo: iStock

Canadian jobs report competes with NFP for attention

The Canadian jobs report is unique among the G-10 currencies due to the timing of the release. For the most part, the release occurs simultaneously with the US nonfarm payrolls (NFP) report, which, in some respects, is the most important economic data series of a given month. That timing often makes for some interesting trading dynamics.

The Canadian dollar soars or sinks depending upon the size of the deviation from the forecasts, which is to be expected, while simultaneously reacting to the results of the US nonfarm payrolls (NFP) report. Many times, USDCAD losses from a relatively strong Canadian report are quickly reversed on a better than expected NFP report or vice versa. That movement is easily explained –the US is far more important to global FX markets than Canada is.

Another factor is the reliability of the data. Forecasting the Canadian data is akin to picking a winning lottery number. Sometimes you get lucky, most times you don’t. Last August, Statistics Canada had to re-issue the July report due to “errors in the calculation”.

Chart: Canada employment change and US nonfarm payrolls

Source: TradingEconomics.com

“The rocket’s red glare may burst the Loonie in air”

This Friday’s employment reports may result in more pronounced FX reactions if the deviations from the forecast are sizeable. This is due to the size of outstanding speculative positions and the loss of direction in the US dollar against the majors.

The break of key areas of support/resistance for the US dollar has added an element of two-way risk to US dollar trading which had been absent for the past six months. The theme of divergent US and Eurozone economic growth has diminished, adding another level of uncertainty to US dollar direction.

Canadian employment forecast: (Change in employment-loss of 2,500; Unemployment rate 6.9%).
US nonfarm payrolls forecast: (213,000; unemployment rate 5.4%)

USDCAD will explode higher if the Canadian employment report is worse than expected and NFP beats expectations. The 15,000 jobs lost when retailer Target fled back across the border to the US after a $5 billion “oops” added to the wide scale layoffs in the oil patch underscore the vulnerability of the Canadian report. Meanwhile, everything is expected to be coming up roses with NFP as weather-related losses are expected to be recouped. If so, USDCAD will be probing resistance at 1.2290.

Oiling the way to Loonie upside

WTI oil prices have broken above resistance at $60.00/bbl which, if sustained, could be the catalyst for a renewed Canadian dollar rally. The price action contrasts with supply/demand theory. No one disputes that the world is awash in oil. US crude supplies at Cushing Oklahoma are near record highs. The WSJ noted in a story today that an energy advisor firm, Ritterbusch and Associates, said “it would appear that further US commercial inventory increases lie ahead.” That should have put a damper on price increases. It didn’t.

Bloomberg reports that Brent prices jumped more than $1.00 a barrel on the closure of a Libyan oil port. In the face of a massive glut, it is hard to understand why the closure of a Libyan oil port which impacts less than 500,000 barrels a day is reason enough to push Brent and WTI higher. It probably doesn’t.

What gives? The experts aren’t sure and there as many theories as there are varieties and grades of oil. Have lower prices really increased demand enough to sop up the glut? Is oil demand from India becoming a major factor? Will China’s oil purchases for stockpiling meet capacity constraints soon? Will American shale producers ramp up production to service debt or curtail production due to costs?

There are lots of questions but very few answers. A partial explanation may be found in the US dollar. The past month’s US dollar retreat has coincided with the rally in oil. As the chart below shows, as long as the US dollar retreats, oil prices will rise.

Chart: US oil and USDX

Source: Saxo Bank. Create your own charts with Saxo Trader click here to learn more.

– Edited by Clare MacCarthy