Feta up with Greece? – worry about Canada 26Jun15


Feta up with Greece? – worry about Canada

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • US dollar ending week higher
  • Week ahead will be choppy and for some, short
  • Loonie vulnerable to an NDP government

By Michael O’Neill

The US dollar is closing the week with gains across the board due to a resurgence of interest rate divergence concerns and a dose of EU/Greece fatigue. However, just because the talks have dragged on and on, it doesn’t diminish the impact that a default could have on the Eurozone.

There are numerous articles, filled with astute arguments, as to why a Greek default isn’t as big a deal in 2015 as it would have been in 2010 but when (if) a default occurs, watch for new articles explaining why the previous articles got it wrong.

Stiffing creditors on a €450 billion plus debt will leave a big mark and the fall-out will be nasty.

Will CAD take a ride on the wild side? Photo: iStock

USDCAD outlook

Tuesday will be a big day for FX markets and the Canadian dollar. For most, the biggest risk is the June 30th deadline for Greece to make a payment to the IMF. For USDCAD traders its GDP and month end portfolio rebalancing flows.

GDP could surprise to the upside and coupled with rumoured USDCAD selling for the “fix”, would lead to a weaker USDCAD. In addition, Canadian and US holidays later in the week, may impact liquidity.

USDCAD technical outlook

The intraday USDCAD technicals are bullish while trading above 1.2325 with the break above 1.2370 pointing to further gains to 1.2395 and then 1.2420. A break below 1.2325 would suggest further weakness to 1.2280.

For the week ahead, USDCAD remains locked within a 1.2160-1.2560 trading band and it has been hovering around the middle of this range all week.

Chart: USDCAD 4 hour with trading band shown

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

Canadian election will destabilize Loonie

It is still early days, however, the Canadian Federal election which is expected to be held in September or October may lead to increased USDCAD volatility, not unlike that experienced by GBPUSD in the run-up to the May 7th election.

Cable was continually rising and falling with every shift in the polls and that may be how the Canadian dollar trades once the election is officially called.

Already, the three major political parties (Incumbent Conservatives, (PC’s) Official Opposition NDP, also-rans Liberals) are releasing ads touting their vision and slamming the other guys. The one major difference with this election is that the leftist NDP party, led by Thomas Mulclair, is leading in the polls. If he was to prevail, it would be a disaster for the Canadian dollar and the country as a whole.

Seat projections as of June 25 -NDP (orange) Liberals (red) PC’s (blue)

Source: Global News/LISPOP

Loonie (truly) timeline of Canadian politics since 1985

The province of Ontario (with 1/5 the population of Canada) accidentally elected an NDP government, led by Bob Rae, in 1990. Mr. Rae found an enormous budget deficit and tripled it while hiking taxes and giving big raises to unionized (their support base) civil servants. Ontario is still suffering the effects of the NDP fiasco.

If the NDP wins in the Federal election, imagine, the delight of Mr. Mulclair and his colleagues in finding a balanced budget at their fingertips. In the blink of an eye, they would make Greece look like the poster child for fiscal restraint.

The Canadian dollar would tank. USDCAD would reach the all-time high of 1.6183 (on Dec. 21/2001) in no time. Check out the following chart for a snap-shot look of how the Canadian dollar performs under various political regimes. There is a grain of truth to the currencies performance vis a vis each party.

Chart: Canadian governments and the Canadian dollar since 1985

Source Saxo Bank

The week that was

“Should I stay or should I go? That’s what The Clash were singing in 1982 and that is the tune crooned by Greece PM Tsipras all week long.

Monday started with optimism that a Greek deal was imminent following a report that Athens had submitted new proposals with concessions. EURUSD was flirting with 1.1400.

Oops, Greece bureaucrats submitted wrong proposals and EURUSD quickly retreated. New York spent most of the day awaiting news from the EU/Greece meetings and ignored domestic data releases.

Tuesday the dollar turned bid and rallied across the board. Positive soundings developments from the EU/Greece negotiations, solid US data releases and interest rate hike warnings from a Fed governor were all important drivers of the dollar throughout the day.

Wednesday opened in New York with news that the EU/Greek talks had failed. For some reason, that was an excuse to buy US dollars, initially. The day ended on a mixed note in part because the Greek PM, Tspiras and EU Commissioner Juncker were still talking. The dollar gained against GBP, AUD and CAD but faded against CHF, JPY and NZD. Liquidity was described as “poor”.

Thursday was a day of consolidation for the US dollar. Greece was still the focus but traders were getting feta-up with it and so were the negotiators. The EU and Greece scheduled a meeting for Saturday for more talks. US data releases (Consumption and Expenditures, Jobless Claims) were mostly positive but ignored.

The week that will be

Whether the Greek drama becomes a Greek tragedy may get decided early next week if Athens fails to pay the IMF €1.5 billion on June 30th.

June 30th will be exciting for another reason as well; it is month end, quarter end and ½ year end which likely means volatility ahead of the 16:00 GMT fix.

It is also a short week for Canadians and Americans. Canada is closed for Canada Day on July 1st while the USA celebrates Independence Day on Friday July 3rd.

Sandwiched in-between is the always interesting US nonfarm payrolls release on Thursday. Aussie traders will be on alert on Tuesday as the Reserve Bank of Australia governor will be giving a speech and he is unlikely to champion the local currency. The week will end quietly with the US closed.

– Edited by Clemens Bomsdorf

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Data, dots and the Loon-atic fringe 23Jun15


Data, dots and the Loon-atic fringe

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • Watch EURCAD for EURUSD direction
  • Seeing dots may delay rate hikes
  • Canada and USA – BBF’s forever

For better or worse, Canada is sensitive to every twitch of its powerful neighbour. Photo: iStock

By Michael O’Neill

USDCAD rarely moves independently of broader US direction and when it does, the moves do not tend to last. That is because the USA and Canada are each other’s largest trading partner. The difference is that the USA represents 77% of Canada’s total trade volume (according to Stats Canada) while Canada is a mere 16.4% of the total USA volume. (US Census bureau)

Pierre Elliot Trudeau, prime minister of Canada from April 1968 to June 1984 (except for 10 months in 79/80) and father of the current Liberal Party leader, described the Canada/USA relationship in a 1969 speech in Washington thus; “Living next to you is in some ways like sleeping with an elephant. No matter how friendly and even-tempered is the beast, if I can call it that, one is affected by every twitch and grunt.” For USDCAD traders, that relationship is as true today as it ever was.

This week, there isn’t any Canadian data releases to drive USDCAD direction while the US has an abundance of mostly second tier reports on tap. This morning’s US durable goods report was expected to be soft and it was. But it was not weak enough to stem the tide of dollar demand.

Dots delay rate hike day

Despite all the wringing of hands and gnashing of teeth surrounding the timing of a US rate increase, the consensus still believes that; a) there will be rate hike in 2015. b) September is still the favoured date although December forecasts are rising.

Last week’s Federal Open Market Committee (FOMC) meeting was viewed as more dovish than expected in light of a shift lower in the dots for 2016 and 2017. JP Morgan economists have kept their September rate hike forecast but say the risk is skewed to a later decision. Goldman Sachs economists changed their September hike to December.

Various Fed speakers have declared that US rates will be rising in 2015 and that rate increases are data dependent (as opposed to dart-board tosses!). Fed Governor Jerome Powell said today, that he sees two hikes this year. He also said markets were too focused on the date of the first move in an interview with the Wall Street Journal’s Jon Hilsenrath and noted that “interest rate forecasts out for 1-2 years have a large error band”.

EURUSD gains prove fleeting

The US dollar has recouped all of last week’s losses incurred when the markets concluded that the FOMC was dovish. Last Wednesday, EURUSD rallied to 1.1430 from 1.1250 and today it is trading at 1.1150. What changed? Nothing.

Apparently, even though the Fed may be a tad slow to pull the trigger, it will still fire the gun. Across the pond, the European Central Bank will continue with its quantitative easing programme while attempting to avert Greek debt contagion spilling over into other “iffy” EU member countries.

EURUSD selling is being attributed to speculation that long US dollar positions, which had been sharply pared back since the end of May, are being rebuilt. The technicals support this theory. The break of the intraday uptrend at 1.1290 and the subsequent drop below the 1.1193 (38.2% Fibonacci retracement level of the May-June range) targets a retest of 1.0850 if 1.1130 breaks.

EURUSD 4-hour with Fibonacci

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

EURCAD may hold key to US dollar direction

EURUSD is under pressure and appears poised for further losses but EURCAD is raising the caution flag. The EURCAD uptrend from the April 20 low of 1.3075 remains intact while trading above the 1.3720-40 area. A move below would extend losses to 1.3500. However, a failure to break the uptrend would question the US dollar’s ability to continue to rally.

EURCAD 4-hour with uptrend line

Source: Saxo Bank

USDCAD technicals

The intraday USDCAD downtrend from the beginning of June comes into play at 1.2390–1.2405 and is on the verge of being tested. If broken, USDCAD will quickly test resistance in the 1.2475 area which represents the downtrend from March and then 1.2560.

The USDCAD uptrend from August 2014 remains intact while trading above 1.2090

USDCAD daily with uptrend and downtrend lines shown

Source: Saxo Bank

– Edited by Clare MacCarthy

Full moon madness (and FOMC lunacy) 16June15


Full moon madness (and FOMC lunacy)

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • FOMC meeting has markets on edge
  • Retail sales could boost recovery narrative, CAD
  • USDCAD flirting with 1.2310-20 support

The FOMC meeting is hovering above trading floors, with investors jumpy

at the prospect of US policy normalisation. Photo: iStock

By Michael O’Neill

There is a well-documented link to a rise in madness during a full moon. Doctor visits rise, admissions to psychiatric hospitals increase and old metal gods "Bark at the Moon". A similar phenomenon occurs during the time of a FOMC meeting: madness rules on the run-up to the statement and sanity returns a few days later.

Consider some of the market-moving events during the week of the April FOMC meeting. You may recall that this meeting didn’t come with a press conference, which many understood to mean that it would deliver a benign result. It did, and then flat-lined soon after.

EURUSD was climbing as extreme short EUR positions got pared back. News of a revamped Greek negotiating team fueled EURUSD buying as it was thought to pave the way to a successful resolution to the debt crisis. How naive.

EURUSD activity around April/15 FOMC

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

Source: Saxo Bank

Madness was evident in the run-up to the March FOMC meeting with traders and analysts, strategists and talking heads all preoccupied with “patient” and whether the Fed would remove the term from the statement.

Position adjustment was evident and falling oil prices were causing alarm. When the statement was released, “patient” was missing but so was a lot of hawkish rhetoric and the US dollar tanked. By the end of the next day, all was forgiven and EURUSD was back to where it was before the statement.

EURUSD activity around March/15 FOMC

Source: Saxo Bank

The week of the January FOMC meeting saw markets concerned about Greece, positioning, cheap oil, and a raging debate on whether the FOMC statement would be hawkish or dovish with many traders/analysts still believing in a June rate hike.

Boy, would they be disappointed.

And EURUSD gains were soon erased.

EURUSD activity around January/15 FOMC

Source: Saxo Bank

Wednesday’s FOMC meeting is likely to follow the same pattern as the previous three meetings-intense pre-meeting scrutiny and then “what now?”

Canadian retail sales and CPI ahead

Tomorrow’s FOMC statement may be the marquee event of the week for many FX players but USDCAD traders will be eagerly awaiting the Canadian retail sales and CPI reports on Friday. These reports will reinforce the Bank of Canada’s assertion that the domestic economy will rebound in Q2.

May CPI (forecast 0.5%, month-over-month, core 0.3%)

The Bank of Canada governor’s concern surrounding low inflation was well documented last fall and that, combined with the oil price collapse, led to the surprise rate cut.

Since then the debate is, according to the April Monetary Policy Report, “whether the temporary effects of sector specific factors and pass-through of the lower Canadian dollar have offset the disinflationary forces from slack in the economy”.

Economists from TD Bank and CIBC both expect a slightly softer report but not soft enough to have much of an impact on USDCAD trading.

Canada CPI as of April 2015

Source: Statistics Canada

April’s retail sales (forecast 1.0%, ex-autos 0.4%)

A gain in retail sales will just fall into the category of “more good news” but will not likely be a big enough deal to make USDCAD traders care.

That said, when improving retail sales data is combined with other recent strong data releases such as Monday’s large jump in existing home sales, Ivey PMI and the employment report, an argument can be made that the domestic economy is improving steadily.

Canada Retail Sales-March

Source: Statistics Canada

USDCAD technical outlook

The USDCAD downtrend from the March peak of 1.2820 has survived three attempts to break through the line. The May-June rally from 1.1930 halted at 1.2560 and the subsequent retreat has stalled above the 38.2% Fibonacci retracement level (1.2204) of the November/14-March/15 range. A break of this level would extend losses to 1.1930.

The intraday technicals are flirting with support in the 1.2310-20 level, which if decisively broken, should lead to a drop to 1.2240 and then 1.2204. The March downtrend line (currently 1.2550 is guarded by resistance at 1.2390, 1.2440 and 1.2480.

USDCAD daily chart with Fibonacci retracement levels

Source: Saxo Bank

— Edited by Michael McKenna

Week ahead/week wrap 12June15


The Loon, oil and the FOMC

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • Michigan sentiment lifts USDCAD
  • Loonie treading oily water
  • Reading the RBA and RBNZ tea leaves

A long time ago, in a galaxy far away, we imagined June would see a US rate hike. Pic: iStock

By Michael O’Neill

The US dollar is ending the week mostly down against the majors with the exception of Kiwi and that move was orchestrated by the Reserve Bank of New Zealand. Today’s US PPI and Michigan Consumer Confidence data were much like previous data releases – mixed. And mixed is probably the message that’ll be delivered by the Federal Open Market Committee (FOMC) on Wednesday. We’ll know fairly soon.

US dollar index lacks direction

The USDX isn’t providing traders with much in the way of direction. A series of intraday lower highs is making minor uptrend support in the 94.20-25 area vulnerable to a breech and exposing 93.10-20 to a test. A topside break of the 95.75-85 area would lead back to 96.90, but only a decisive break above this level would negate the downtrend from mid-April.

Chart: USDX 4-hour with downtrends

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


Where oil goes, Loonie follows

The WTI crude oil market has showed some signs of stability in the past three weeks, trading within a $57.00-$61.00 band and it is no coincidence that USDCAD has enjoyed a fairly stable 1.2200-1.2550 band as well.

Oil prices are holding firm just above $60.00/bbl in spite of fresh news out of Saudi Arabia about production. The Saudis are ready to raise output beyond the already record highs with a new deal to supply Indian traders with crude. That news supports the Energy Information Administration (EIA) analysts who raised their forecasts for 2015 global oil demand.

Despite the EIA warning that there was “exceptionally high” growth in global supplies, evidence of the much ballyhooed slowdown in US shale production hasn’t really materialised, even with a reduction in rigs.

Apparently, the start of the US “summer driving season” is expected to put a huge dent in oil supplies. This sounds a tad dubious. If other cities in North America are similar to Toronto, road construction and repairs make it impossible to drive anywhere!

USDCAD is unlikely to move beyond either side of the 1.2200-1.2550 range while oil prices remain range bound.

Chart: US Oil and USDCAD

Source: Saxo Bank

FOMC ahead

The US dollar is likely to drift higher ahead of Wednesday afternoon’s Federal Open Market committee (FOMC) interest rate statement. A long, long time ago, in a galaxy far, far away…. wait it was only January, Obi-wan Kenobi and other seers were convinced that the FOMC would raise interest rates in 2015 and June was the likely lift-off date. A spate of weak to mixed data and an ugly Q1 resulted in lift-off being scrubbed until September at the earliest. Wednesday’s FOMC meeting is expected to confirm this view.

USDCAD outlook

The Canadian dollar doesn’t have any data of note until next Friday’s inflation report leaving it at the mercy of US dollar direction against the majors.

However, was the surprise rate cut by the Reserve Bank of New Zealand (RBNZ) a sign of things to come for the Canada? The RBNZ cut rates by 0.25%, citing concern over mixed economic activity in China and the US, falling commodity prices and an “overvalued” currency.

On the other side of the Tasman Sea, the governor of the Reserve Bank of Australia (RBA), Glenn Stevens, opened the door to further easing and made noises about the “high value” of the Australian dollar.

When the Bank of Canada cut rates six months ago, it was in response to weak oil prices and the impact on inflation. Since then oil prices have bounced but the rally has stalled and Canada’s headline inflation rate is still near the bottom of the BoC’s control range. In addition, for the first time in a long time, the BoC statement made reference to the strengthening Canadian dollar.

There doesn’t appear to be much likelihood that the BoC would cut Canadian rates any time soon. However, the fact that the Antipodean’s are easing could encourage Governor Poloz and company to unleash a bit of verbal intervention to level the commodity bloc playing field.

USDCAD technical outlook

Today’s break above 1.2305 negated the intraday downtrend from June 5 with a minor uptrend in place while trading above 1.2305. A break of 1.2355-65 (an hourly triple top) is needed to extend gains to 1.2420.

Longer term, USDCAD is in an uptrend from the May low which comes into play at 1.2210-30. It is competing with the downtrend line from March that currently sits at 1.2550-60. The intraday 50% Fibonacci retracement level of the March May range is at 1.2360, which has held rallies all week.

USDCAD support is at 1.2305, 1.2260 and 1.2205. Resistance is at 1.2365, 1.2390 and 1.2420

Chart: USDCAD daily

Source: Saxo Bank

The week that was

It was a week that lived up to its advance billing-sort of. The Aussies and Kiwis delivered on the excitement and US shoppers were buying, just not enough to impress.

Monday, a French official reported that US President Obama said “strong dollar no problem”, and for the rest of the day it wasn’t strong anymore. Even the White House’s clarification of the comments failed to stem the selling. The dollar ended the New York session down across the board.

Tuesday saw the US recoup some of Monday’s losses early and then had a mixed day. The Canadian dollar had a good day probably on the WTI rise of about 3.4%. News that Greece submitted two proposals to the European Commission was met with a yawn by traders and a roll of the eyes by negotiators.

Wednesday was lively in Australia when the Reserve Bank of Australia (RBA) governor Glenn Stevens told a luncheon crowd that “We remain open to the possibility of further easing”. AUDUSD eased immediately but the impact was short circuited by the Bank of Japan (BoJ) governor. The BoJ governor sent USDJPY plummeting when he said that “it was hard to see the yen dropping more” adding that “the yen is unlikely to weaken further in real effective terms…” The dollar ended up under pressure against the majors until the New York close.

On Thursday, (late Wednesday in New York) Kiwi was the star of the show in early trading in Asia. The Reserve Bank of New Zealand (RBNZ) snuck in a 0.25% cut in the Official Cash Rate (OCR) and followed up with a dovish statement. Kiwi was crushed and hasn’t recovered. A little later AUDUSD rallied on the back of a surprisingly strong employment report. The US dollar drifted higher during the European session ahead of the US Retail Sales Report. Retail Sales didn’t disappoint, until it did. The data was strong, it beat the forecasts but it didn’t beat them enough and after initial strength, the US dollar drifted lower for the rest of the day.

The week ahead

The week ahead will be divided equally between pre-FOMC and post-FOMC. The pre-FOMC activity will mostly be noise and forgotten by Wednesday at 18:00 GMT. Afterwards, it will be all about trying to find hidden meaning within the statement.

– Edited by Clare MacCarthy


Michael O’Neill is an FX consultant at IFXA Ltd.

Macro-Loonie bulls beware – you might get grilled 9Jun15


Loonie bulls beware – you might get grilled

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • US dollar and Loonie trading in tandem
  • No jolt from JOLTS
  • Loonie technicals turn bullish

Loonie bulls might end up getting grilled. Photo: iStock

By Michael O’Neill

The Loonie has been following the US dollar’s path and getting a little help from its euro friends even though the rationale for the moves is sketchy at best. The US dollar soared on a much better-than-expected nonfarm payrolls report on Friday and then sank in a bit of a head scratcher move. It has since started to recover. There wasn’t a specific catalyst for the plunge and in fact, a series of fairly innocuous headlines, economic releases outlined below, all of which had brief moments when they were important, add up to a big fat zero.

A week ago, the Organisation for Economic Cooperation and Development (OECD) downgraded its outlook for US GDP growth while upgrading that of the Eurozone. The OECD recognised that although the US economy was recovering, it was uneven. Meanwhile, ECB president Mario Draghi and the European Central Bank’s quantitative easing efforts were showing up in improving Eurozone data.

Greece and the rest of the Eurozone have been trading insults and proposals in an effort to avoid a default and Greece leaving/being kicked out of the currency bloc. The EUR has taken turns rising and falling on these developments.

Yesterday, a quote attributed to US president Obama that a “strong dollar is a problem” suggested to traders that perhaps the dollar rally was seen a problematic to the US administration. The White House quickly denied the statement but the damage was done. Traders went looking for evidence on how the dollar strength negatively impacted the US economy.

Today’s Job Openings Labour Turnover Survey (JOLTS) showed a big jump in job openings (Actual 5,376 vs. forecast of 5,044) and it barely caused a ripple in FX markets. For a reportedly “favourite” indicator of the Fed chairwoman, it sure doesn’t get any respect. At the same time, it is another indication that maybe the eagerly awaited US Q2 recovery is picking up steam.

Thursday’s US retail sales report is expected to surpass expectations helping to re-energise the debate for a September rate hike, with next week’s Federal Open Market Committee (FOMC) meeting becoming increasingly important as that is when many expect a clear signal from the Fed.

Fed rate hike fatigue

The FX market uncertainty over the past week or so is probably more a factor of weak positions being constantly adjusted in an environment of Fed rate hike fatigue. Janet Yellen said recently that she still expects rates to rise in 2015 but any decision would be data dependent. At the same time, there isn’t any overwhelming reason to pull the trigger, so even a December lift-off would satisfy the rate bulls.

EURCAD downside supports Loonie upside

EURCAD downtrend from May 2014 survived another attempt last Friday and has since retreated back to the intraday uptrend level, currently at 1.3840, which if broken suggests further losses to 1.3755. Fibonacci retracement of the May-June range looks for another move to the 38.2% retracement level of 1.3690 and then 1.3425.

EURCAD daily with downtrend and Fibonacci

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

USDCAD bulls out to pasture

The bullish USDCAD view has taken a beating in June due to better than expected employment data, housing starts and recently, on selling of EURCAD. The Bank of Canada, on record for forecasting a Q2 rebound, may be proved correct if the Canadian data continues to surprise to the upside. Yesterday’s housing starts numbers handily beat expectations as did last Friday’s employment report. However, it is not all roses and sunshine for the economy. The oil patch is in trouble and the Canadian trade data remains soft. The USDCAD bulls are in the pasture today, but if support at 1.2310 gives way, the bulls will be headed for the slaughterhouse.

USDCAD technical outlook

The intraday and short-term USDCAD technicals are bearish. The USDCAD downtrend from the March peak remains intact while trading below 1.2560 with the intraday down move intact while under 1.2440. Today’s breach of major support in the 1.2360-80 area will revert to strong resistance on a move below 1.2310 which opens up further losses to 1.2165, which represents the 61.8% retracement of the May-June trading range.

However, the long-term uptrend from September 2014 remains intact while trading above 1.2040 implying a short-term 1.2050-1.2550 trading band.

USDCAD Daily with support and possible trading band

Source: Saxo Bank

– Edited by Clare MacCarthy


Michael O’Neill is an FX consultant at IFXA Ltd.

Canada employment – no proof in this pudding 5 June15


Canada employment – no proof in this pudding

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • NFP jobs data keeps September rate hike on table
  • Canadian data impressive, but be skeptical
  • EURCAD stymies USDCAD bulls

By Michael O’Neill

The US dollar, yesterday’s 98 pound weakling, is today’s "rock", flexing it’s muscles and saving the world from earthquakes. The dollar is up against all of its G-10 counterparts, with the exception of the Canadian dollar.

NFP rewards optimists

Optimistic analysts looking for a lofty rise in the US nonfarm payrolls report were rewarded when NFP posted a gain of 280,000 jobs (vs. forecasts for 225,000) and the all-important hourly wages component rose to 0.3% from 0.2%. The 280,000 gain is also better than the 12 month average of 251,000.

For many, this report leaves the door wide-open for a September rate hike although there is still the June FOMC meeting to get past as well as a lot more data before then. The US dollar soared across the board except against the Canadian dollar.

It’s a display of strength from the US dollar today. Photo: iStock


Canadian employment gains impress

Canada’s employment report was just as impressive, gaining 58,000 jobs vs the consensus forecast for a gain of 10,000 jobs. As is always, the case USDCAD trading was extremely volatile around the data, but when the dust settled, USDCAD was lower than where it was, pre-data.

That didn’t last. Although today’s employment report was robust, the fact remains that this data series is unreliable. It is subject to large revisions and huge monthly fluctuations and just last August, the entire release had to be scrapped and re-issued. With that kind of track record, it isn’t surprising that within 20 minutes, USDCAD was comfortably above 1.2500 again.

Canadian employment gains – looks can deceive

Source: Statistics Canada

USDCAD outlook

It is tempting to view today’s Canadian employment data as evidence that the Bank of Canada governor’s optimism for a rebounding domestic economy in the H2 is warranted. It isn’t. The OECD downgraded its outlook for 2015 growth and more than a few Canadian bank economists believe that the economy will under perform.

The recent batch of domestic data has been mixed. BOC governor Stephen Poloz was correct in his assessment that Q1 would be “atrocious”. It was. Wednesday’s Merchandise Trade data showed that the Canadian economy wasn’t getting any benefit from non-energy exports, which is a key metric in the economic rebound scenario.

Whether you believe US rates are going up in June or September, the Federal Open Market Committee maintains that it is going to rise in 2015. Canadian rates, on the other hand, aren’t going anywhere this year and probably not until well into 2016.

Today’s Opec announcementof keeping the existing production ceiling intact, stories that Iran, Iraq and Libya all plan to increase production and no evidence that US production has materially been reduced elevates the risk that oil prices could retest $50/bbl which would put a damper on any Canadian dollar rally.

There is a distinct lack of actionable tier one data next week from Canada and the US until Thursday’s US Retail Sales report. That leaves the Canadian dollar at the mercy of US dollar direction stemming from bond, bund and Greece shocks

USDCAD technical outlook

The intraday USDCAD technicals are bullish while trading above 1.2450 looking for a break of 1.2560 to extend gains to 1.2820. Below 1.2450 risks a retest of support at 1.2310. The long-term trend line from the August 2014 low is intact above the 1.1980-1.2010 area which points to 1.3070 on a break of 1.2820. For next week, USD support is at 1.2460, 1.2410 and 1.2380. Resistance is at 1.2530, 1.2560 and 1.2610.

USDCAD 4-hour with support and resistance

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

EURCAD stymie’s USDCAD bulls

USDCAD bulls have to keep their eye on EURCAD. The long-term downtrend from April 2014 has been tested often, never broken, and comes into play in the 1.4150-60 area. An upside probe failed again yesterday and the currency pair retreated.

Much like USDCAD, the intraday EURCAD uptrend from the middle of April 2015 remains valid until 1.3600-20 is decisively broken, suggesting further 1.3600-1.4150 trading ahead.

EURCAD daily with up and down trends noted

Source: Saxo Bank

The week that was

TV viewers have been bombarded with ads promoting the upcoming release of “Jurassic World” and can be forgiven for thinking that they had seen that movie before. They have. It was the same story in FX land. Eurozone inflation, a bund tantrum and the real life Greek tragedy reappeared like a bad smell and took turns twisting traders into twisty turny things.

Monday started with New Zealanders wishing Queen Elizabeth a happy birthday while those in the rest of Asia took note of a weaker-than-expected China PMI report. The US dollar traded heavily in Europe and ignored mostly positive Eurozone data. It gained even more ground in New York following a bump in the monthly ISM manufacturing index. USDJPY blasted to just shy of 125.00.

The US dollar took a turn for the worse on Tuesday. It started when the Reserve Bank of Australia left interest rates unchanged and omitted a reference to easing in the statement. Reports of a Greek debt negotiation breakthrough combined with more solid Eurozone data sent EURUSD soaring to a high of 1.1195 from 1.0960. The dollar selling spilled over into the Loonie where USDCAD plunged from 1.2525 to 1.2375.

Wednesday was explosive. It started out in Asia with an outperformance in Australia GDP leading to US dollar selling. EURUSD was a tad soft to start the European session, in part, due to the upcoming European Central Bank meeting. That changed after ECB president Mario Draghi’s press conference.

The consensus view was that he didn’t say anything really different from April’s press conference although it would appear that German bond traders heard something different. 10-year bund yields screamed higher and so did EURUSD, which finally ran out of gas at 1.1285 and closed in New York around 1.1260.

On Thursday, USDJPY traders in Asia got spooked, briefly by comments from a Bank of Japan official. AUDUSD fell on weak trade and retail sales data. European traders started from where New York left off and bought more EURUSD, taking that pair to a high of 1.1370. The rest of Thursday saw the US dollar recoup some lost ground as positions got adjust ahead of what could be another strong US employment report but was still down over 4% since Monday.

The week that will be

The week ahead has a tough act to follow but that doesn’t mean it won’t live up to the challenge. Late in the day on June 4, Greece decided that they would “defer” their June 5 payment to the IMF until June 30, leaving plenty of time for inflammatory rhetoric to roil markets. China data, on Monday and Tuesday, may provide insight into the global recovery outlook. Tuesday will also see a rash of UK data including GDP and inflation.

The Antipodeans are in the spotlight on Thursday. First up is the Reserve Bank of New Zealand interest rate decision and statement. A rate cut is still be on the table. Australia employment data may keep the downward pressure on AUDUSD. Later in the day will be the US Retail Sales report. The week will close with traders looking ahead to the following week’s FOMC statement.

Data from China next week will give traders an

insight into the condition of the world economy. Photo: iStock

– Edited by Oliver Morrison

Michael O’Neill is an FX consultant at IFXA Ltd.

US dollar gets burned by Greek fire 2June15


US dollar gets burned by Greek fire

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • EUR rises on Greek headlines
  • WTI and Loonie decouple
  • Beware pre-payrolls positioning

Red-hot rumours about Greece did the rounds and the dollar got scorched. Photo: iStock

By Michael O’Neill

The US dollar was trashed today on what may prove to be misguided euphoria over a successful Greek debt renegotiation. How does the EU lending money to Greece so that Greece can repay a previous outstanding debt to the EU create value? And how does it solve the issues in Greece that created the mess? It doesn’t.

Money Talks or Shot Down in Flames

Australian rocker’s (now geriatric rockers) AC/DC penned two tunes whose titles best describe the state of the Greek debt renegotiation headlines this week; Money Talks or shot Down in Flames. Today’s news reports suggesting that Greece and the EU are close to a deal which could be announced by Friday has led to a predictable EURUSD reaction bounce. Before you take to the dance floor and start flinging the china consider the following:

1) EURUSD speculative positions, although well down from their peak, are still short, which tends to exaggerate corrections.

2) The EURUSD downtrend from October 2014 remains intact while trading below 1.1400 while the medium-term downtrend from a year ago remains active while trading below 1.1740.

3) The 1.1480-1.1500 area represents significant resistance from multiple tops and we are a long way from even testing those levels.

4) The USDX uptrend from the August 2014 low is in place while the USDX is above 94.00 and the EURCAD downtrend is also intact

5) Anecdotally, nonfarm payroll weeks tend to inflame trading volatility in the days preceding the release with position adjustments being a key driver.

Chart: USDX daily with uptrend line

Source: Saxo Bank

Oil and Loonie – a trial separation?

WTI and the Loonie have been well correlated throughout March and April. Gains or losses in oil prices translated to gains or losses in USDCAD. Then May came along and the spring romance appears to have ended, although it’s more than likely that the WIT/Loonie pair is merely on a break.

That could change on Friday with the Opec meeting. Most reports suggest that the cartel is unlikely to announce a cut in production, exposing WTI prices to renewed selling on oversupply fears. Just last Wednesday, a Bloomberg story alluded to the oil tanker market signalling that the oil rally is under threat.

Perhaps the USDCAD rally is a harbinger of an oil price fall. Then again, maybe not. On Monday, the Saudi oil minister was reported as saying that he expected oil demand to pick up in the second half while supply decreased.

At the moment, USDCAD appears content to ignore WTI price swings within a $57-$62.00/bbl range.

Chart: USDCAD and US oil daily

Source: Saxo Bank

Canadian employment data ahead

Lost in the shadows of the US nonfarm payrolls release is the Canadian employment report. This is a fickle, volatile and mostly unreliable piece of data which still manages to attract a lot of attention. Friday’s report for May is expected to rebound from last month’s dismal showing with a gain of 10,000 jobs, although the unemployment rate will remain unchanged.

Keep in mind that any reaction to this data will be short lived as USDCAD is being driven by US dollar direction vs. the majors.

The following chart highlights the volatility in the data:

Source: TradingEconomics/Statistics Canada


USDCAD technical outlook

The intraday USDCAD technicals are bearish following this morning’s break of support at 1.2490. So far, two attempts to break below the 1.2440 support area have failed. Is the third time a charm? A break below 1.2440 would suggest a short-term top is in place at 1.2560 which would be confirmed by the loss of 1.2410. A move below the 1.2380-1.2410 zone suggests further weakness to 1.2000

The short-term downtrend line from the March peak of 1.2820 survived a couple of tests in the past few days and this downtrend remains intact while trading below 1.2550-60.
Failure to break 1.2410 suggests additional 1.2140-1.2560 consolidation until Friday.

USDCAD daily with competing trend lines

Source: Saxo Bank

– Edited by Clare MacCarthy