Deadlines and deadbeats and the US dollar is bid 1July15


Deadlines and deadbeats and the US dollar is bid

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • USD bid on month-end demand
  • Greek talks go on and on and on
  • Weak GDP boosts USDCAD

The clock is ticking for Greece and the outcome won’t be pretty. Pic: iStock

By Michael O’Neill

June 2015 is coming to a close and the deadline for the resolution of two major issues is at hand. The Greek saga gets top billing. The Greek prime minster, Alexis Tsipras, draped a noose around the necks of the Greek populace, when he ordered his finance minister Yanis Varoufakis to walk away from the EU/Greece negotiating table. The clock is ticking down to when the trap door gets sprung and Greek citizens are left hanging in the balance.

June 30 is also the arbitrarily determined deadline for Iran and the US-led group of world powers to finalise a deal to end UN sanctions in exchange for a halt to nuclear weapon development. That deadline is becoming a July 9 deal wrap-up date.

Arguably, a failure of these negotiations represents a bigger risk to the world.
A failure in the Greek talks may risk blowing up European financial markets, figuratively speaking,
while a failure in the Iran/UN talks could literally blow up the world, or at least the Middle East.

However, we are not even close to Doomsday, if EURUSD traders are to be believed. EURUSD is in demand, fully recovered from yesterday’s plunge at the Asian open and threatening further gains to the 1.1290-1.1330 area.

Chart: EURUSD 4-hour with Fibonacci

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

US dollar index clearly oblique!

Those looking to the US dollar index to provide US dollar direction have been disappointed. The break of the October 2015 uptrend line after the latest Federal Open Market Committee meeting has been proven to be a “blip”, a false break as a byproduct of poor liquidity. The subsequent rally off the 93.20-30 low stalled right on the downtrend line from April, (at 96.75) leaving the USDX to bob and weave within the 93.20-96.75 range.

The intraday technicals are modestly bullish while trading above 95.00 but needing a break of resistance at 95.60 to extend gains to 96.10 and then 96.75. A move below 95.00 will test 94.70 and then 93.20.

Chart: USDX Daily with support and downtrend noted:

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

Is oil stabilising the Loonie?

USDCAD has confounded both bulls and bears since April. Attempts to break above resistance in the 1.2550-70 area have been thwarted as have attempts to break below 1.1940. The result has been choppy and erratic trading but confined to the aforementioned band. It is likely no coincidence that WTI has enjoyed a similar period of stability as it has been confined to a $55.80/bbl-$62. 50 range for the same period. Incidentally, both ranges are about 620 points, (0.0620 and $6.20) which is an interesting statistic but likely meaningless.

At the same time, the US oversupply situation that contributed heavily to the November WTI price collapse has not been reduced in a meaningful way. The Saudis continue to pump oil like there is no tomorrow and apparently Iran has 40 million barrels of crude floating in tankers floating at sea just waiting for the sanctions to be removed. (Those ships will run out of food long before they run out of fuel!) If Iran and the US (etc.) arrive at a deal, oil prices will drop and the Loonie will follow suit.

Chart: USDCAD and US oil 4-hour with ranges noted

Source: Saxo Bank


Canadian economy, sputtering and coughing

Statistics Canada reported this morning that real GDP edged down 0.1% in April, the fourth consecutive monthly decline and below forecasts that expected a gain of 0.1%. USDCAD jumped to 1.2450 from 1.2365 following the news.

A recession is defined as two consecutive quarters of negative growth. Two more negative results for GDP and Canada will be in a technical recession. That would surprise a few people including Stephen Poloz and his cronies at the Bank of Canada (BoC). They are expecting the Canadian economy to rebound in the second half. In the April BoC interest rate statement, the BoC forecasted that “the impact of the oil price shock on growth would be more front loaded than predicted in January, but not larger”.

Today’s GDP data suggests “maybe not”. Maybe, the oil shock had a much bigger impact on the economy than previously thought which opens the door to possible new stimulus measures. Rate cut anyone?

USDCAD technicals

The short-term USDCAD technicals are bullish while trading above 1.2280 with today’s break above resistance in the 1.2460-70 level opening the door for another test of resistance in the 1.2570 area. A move above 1.2570 should extend gains to the 2015 high of 1.2820. Only a move back below 1.2360 would negate the topside pressure.

Chart: USDCAD daily with uptrend

Source: Saxo Bank

– Edited by Clare MacCarthy

Categories FX, Foreign Exchange, Currency, Canadian Dollar

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