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.

Categories FX, Foreign Exchange, Currency, Canadian Dollar

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