Black Friday shopper snap up US dollars 27Nov15


Black Friday shoppers snap up US dollars

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • US dollar climbs in thin markets
  • Markets look forward to the most dovish rate hike in history at next month’s FOMC
  • Turkey’s downing of Russian jet sparked risk aversion across markets
  • Week ahead brings major risk events, above all the ECB and Opec meetings

The Black Friday shopping spree in the FX markets consisted of a spurt of US dollar buying. Photo: iStock

By Michael O’Neill

The US dollar has had a good day, gaining across the G-10 spectrum aided by low liquidity due to the post-Thanksgiving half-day holiday in the US. It’s not really a day off for American employees, but efficient staffing and "brief illnesses" give it the appearance of a National holiday.

Most doveish rate hike in history

There are still 19 shopping days left until the Federal Open Market Committee (FOMC) announces that it is raising US interest rates by 0.25%. That will be the first rate action of any kind by the FOMC in seven years. Unfortunately, it will not put an end to the “when will they hike rates?” debate which has also lasted for seven years.

The only reason that December’s rate hike is a slam dunk is that Fed chief Janet Yellen has said, more than once, that US rates would rise in 2015. Except for the last employment report, recent US economic data have not screamed endorsement for a move.

Inflation is an issue. More precisely, lack of inflation is the issue, and according to the Fed’s Daniel Tarullo, “market-based measures of inflation compensation and survey-based measures of inflation expectations are sort of near historic lows”. He noted that although the US economy was chugging along, it was still an overall mixed picture.

Nevertheless, the FOMC will announce a rate hike. Yellen will be hailed as a “woman of action” who is decisive and does what’s necessary. After the announcement, a gaggle of Fed speakers will trip over their tongues telling everyone that rate hikes are data-dependent and will be gradual. Watch for forecasts that the next move may not occur until the third quarter of 2016 at the earliest.

US dollar bulls will not be happy. Long US dollars is the most popular trade in the FX markets with substantial profits available to many, at current rates. A dovish FOMC statement would create a stampede to profit-preservation trades. Another EURUSD rally back to 1.1500 cannot be ruled out.

Turkey – the farce awakens

There was a whiff of risk aversion in the air on Tuesday and lingering traces remain. It is all because of Turkey’s shooting down of a Russian SU-23 fighter jet on the Syrian border for ostensibly encroaching on Turkey’s airspace. The plane was destroyed and a pilot killed.

Turkey insists it was merely protecting its airspace though in reality it was more likely retaliating against Russia for numerous grievances and for backing Syrian President Bashar al-Assad.

Meanwhile, across the Turkish border in Syria, Russia is actively attacking ISIS positions. Turkey, on the other hand, is attacking Nato-backed Kurd positions, another group that is fighting ISIS. It is apparent that Turkey is using its Nato membership, the Syrian civil war and the Nato campaign against ISIS to advance its 30-year agenda against the Kurdish PKK party.

Is Turkey the rogue nation of Nato? It sure looks like it. By openly attacking Kurd positions in Syria it is essentially providing military support to ISIS as the Syrian Kurds are a key Nato partner fighting ISIS on the ground. The same holds true for their downing of the Russian jet.

Fear that Russia could escalate the conflict and suck Nato allies into a black hole of hostility is distracting key members from the main agenda — eradicating ISIS. Turkey is proving that its Nato membership is a farce.

Fear of escalation has distracted key Nato members’ attention from the main job of fighting ISIS. Photo: iStock

US dollar index shows the way

The USDX has been grinding higher since mid-October after finally breaking major resistance in the 98.40-70 area which had thwarted numerous attempts since last April. For the past two weeks, the uptrend has been rather ragged; rallies followed by retreats, while still managing to post higher highs and higher lows.

The intraday USDX uptrend remains intact while trading above 99.60, with a break of the 100.30-40 area suggesting further gains to around 102.00. A move below 99.60 would open the door for a deeper correction to the 98.50 area. Incidentally, the 61.8% Fibonacci retracement of the entire 2002-07 range comes into play at 101.95.

USDX weekly chart with Fibonacci noting approach to major resistance

Source: Saxo Bank

The week ahead

The week ahead has more than its fair share of event risk. The two biggest are Thursday’s ECB meeting and Friday’s Opec meeting.

Friday will be extra-busy thanks to the monthly US employment report. There’s more. Tuesday has a speech by BoJ governor Kuroda and an interest rate announcement from the Reserve Bank of Australia. The Bank of Canada announcement follows on Wednesday. It will be a fitting start to the holiday season as all the goodies are delivered at the beginning of the month.

— Edited by John Acher

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Welcome to the “What Just Happened Zone 24Nov15


Welcome to the ‘What just happened?’ zone

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • US data leads to profit taking
  • Risk aversion rising on Turkey shoot
  • Loonie benefiting from oil gains

Didn’t see that coming. Photo: iStock

By Michael O’Neill

FX markets are entering the “What just Happened?" zone. This zone is that trading session (or sessions) when an obscure piece of economic news or event triggers a sharp price swing in a currency or currencies. When it occurs, it is usually followed by a collective WJH? from FX traders.

A WJH zone is a market phenomenon that occurs when there is a large drain of liquidity exacerbated by a lack of data for a period of time, which could be hours, days or even weeks. The latest version of the WJH zone is shaping up to be a doozy and it may already be starting.

Normally, the US Thanksgiving holiday provides all the excuses needed for traders to lighten up positions and retreat to the sidelines. This year, they will be sidelined for longer.

The European Central Bank meeting, scheduled for December 3, promises to be a momentous occasion, especially for EURUSD traders. ECB president Mario Draghi has alluded to unleashing a host of stimulus measures which will determine the fate of the euro for the next few months.

Anticipation of that meeting will keep EURUSD traders, not just on the sidelines, but glued to the bench.

Opec is the other major risk. Normally, Opec meetings are of interest only to attendee’s and their entourages.

Last November’s meeting changed that when it led to the oil price collapse. What’s in store this year? The 168th (Ordinary) Opec Meeting is on December 4, immediately following the ECB meeting.

Saudi Arabia made fresh noises about cooperating with Opec and non-Opec countries yesterday, and that created a furor in oil markets especially since traders are reportedly, well-short oil. Although still a long shot, the possibility of a production cut accommodation, cannot be ruled out which would likely leave a mark.

Opec could stir the markets’ pot if a bit of give-and-take
sees a move towards price stabilisation. Photo: iStock

Together, Thanksgiving, ECB and Opec, have provided the ingredients for a WJH zone. The only thing left is the catalyst.

For the next nine days, FX traders may be exposed to wild price swings on anything that spooks them. It could be Russia retaliating against Turkey for shooting down a Russian fighter jet. It could be ISIS launching another terrorist attack in Europe or blowing up a major oil terminal.

It could be a central banker pulling a peg or putting one in place. It could be a piece of data or a series of data that could play havoc with ECB plans to add stimulus. The point is; it could be anything and with so many traders not active, the price swings can be enormous leaving a lot of people asking WJH?


Fun with figures or Canada Finance 101

Last Friday, Canada’s new Finance Minister, Bill Morneau, provided an update for Economic and Fiscal Projections. He announced that Canada will end the year (March 2016) with a $3 billion dollar deficit. In July, his predecessor, Joe Oliver maintained that Canada would end the year with a $1.5 billion dollar surplus. Pinocchio complained that both men’s noses were longer than his at the fall fair fib telling contest.

In reality, Finance Canada, has created a new accounting category, the “deficitsurplus”. A “deficitsurplus” is always 100% accurate, never needs an adjustment to balance and contains no numbers.

Nevertheless, Bill Morneau’s reality is all that matters going forward. His party is the government and he is the Finance Minister. Joe Oliver is now a footnote.

The Finance Department’s latest projections are for the Canadian economy to grow at 1.9%, year over year 2015-19, 0.2% lower than previous forecasts, making sure to attribute some of the slowdown to ongoing global economic weakness. He also noted that the balance of risks for the Canadian economy were tilted to the downside, in part due to the oil market outlook.

This assessment is just another notch in the negative Loonie stick.

Budget balance

Canada Department of Finance

USDCAD outlook

USDCAD is consolidating recent gains within a 1.3230-1.3460 range. There isn’t any data of note from Canada for the balance of the week leaving general US dollar sentiment and oil price movements to dictate direction.

This morning’s US data (GDP, Trade, PCE) were all as expected and did not provide any fresh insight to inject into the rate hike debate. What has changed was the notch higher in geopolitical risk. Turkey’s downing of the Russian fighter jet is not likely to endear them to Vladimir Putin and his associates, especially since Putin can argue that the jet was being used to help the Europeans in their fight against terrorism. Whose side is Turkey on — the West or ISIS?

However, any US demand from risk aversion trades may be offset by a rise in oil prices which should limit USDCAD gains.

USDCAD technical outlook

USDCAD is in a short term uptrend while trading above 1.3110 and an intraday uptrend while trading above 1.3240. At the same time, upside momentum has stalled in the 1.3450-70 area.

USDCAD hourly with potential trading range

Source: Saxo Bank

A break of minor uptrend support at 1.3320 suggests a retest of 1.3240 is likely and if that level goes, 1.3110 is in the cards.

The US holiday and the ECB/Opec meetings looming at the end of next week may lead to a period of 1.3240-1.3450 consolidation.

— Edited by Martin O’Rourke

ECB and Opec-for markets nothing else matters 20Nov15


ECB and Opec – for markets, nothing else matters

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • Canadian data mixed and ignored
  • WTI prices scratching bottom, almost.
  • Waiting for the ECB and Opec

Nobody’s talking turkey as we wait for the ECB and Opec. Photo: iStock

By Michael O’Neill

It will be good to be an American next week. Their focus will be on family, friends, football and turkey. The rest of the FX world will be at their desks wondering why they turned on their computers. It’s not like there isn’t the usual array of regional data and even a few top-tier US releases on tap for traders to focus on, it’s because of the December 3 European Central Bank (ECB) meeting and the December 4 168th (Ordinary) Opec meeting in Vienna. Until then, as Metallica sang in 1991, “nothing else matters”.

Countdown to ECB begins

European Central Bank president, Mario Draghi, in a speech in Frankfurt today, reiterated his earlier remarks alluding to another round of stimulus action being announced on December 3. He repeated that “the ECB is willing to act quickly and has the available instruments to do so.” He has garnered a reputation as a man who backs up his words with action. That is a sharp contrast to the approach of the Federal Open Market Committee members or the Bank of England’s Mark Carney. They have switched between hawkish and dovish almost as fast and as often as FIFA officials took bribes.

Mario Draghi’s stated intentions ensures that next month’s ECB meeting will be a game-changer and set the tone for EURUSD direction for the next few months. That risk and Thanksgiving provides all the rationale needed for FX traders to sit on the sidelines for the next 13 days.

More fun than an oil barrel of monkeys

A surprise at the Opec meeting on December 4 would be the steroids for whatever action the ECB takes. Oil prices are hovering just above their 2015 lows with no end in sight to the problem of overproduction and dwindling demand. Early last week, Opec Secretary General, Abdalla El-Badri, confidently predicted that oil demand will reach 17 million barrels/day by 2040, 25 years from now. His crystal ball has a hyperopic flaw as the 2016 prediction was rather vague and fluid and extended to 2017.

The chances of Opec cutting production targets are slim to none. Goldman Sachs analysts said in a report this week that Opec’s ability to raise prices by reducing supply is hampered by the ability of US shale producers to ramp up low cost production.

Although few should be surprised by Opec maintaining production quotas as they are, the fact that Opec is essentially powerless to change prices may lead to renewed oil price weakness and spark another selloff in commodity currencies. Another good reason for traders to sit on the fence until that meeting.

The two major events (ECB and Opec) and US Thanksgiving will ensure very quiet FX markets next week and right up to December 3. There will be a few regional distractions but these two meetings will dictate US dollar direction and ensure range bound markets for the next two weeks.

USDCAD outlook

Today was a prime example demonstrating that Canadian data not matter, at least in the current environment. Core CPI rose 2.1% (forecast 2.0%) while the headline CPI number was unchanged at 1.0%, year over year. Retail sales declined as well, in large part due to falling gasoline prices. Neither release will be much of a factor for the Bank of Canada interest rate deliberation in December. For the Canadian dollar, oil is the story and at the moment, oil is very soft.

Chart: CPI and Retail Sales

Source: Statistics Canada/IFXA Ltd

USDCAD technical outlook

The short- and long-term USDCAD uptrends remain intact while trading above the 1.3090-1.3100 area and 1.2750 respectively while the intraday uptrend is at 1.3240. The 1.3350-70 area has proved to be very sticky ahead of strong resistance at 1.3455-65 representing the 2015 peak and the 61.8% Fibonacci retracement level of the 2002-2007 range. Next week’s US holidays will sap out a tonne of liquidity which could lead to some volatility within the 1.3240-1.3370 trading band.

Chart: USDCAD

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

The week that was

The week started with traders still digesting the horrific news from Paris and concerned about its impact on financial markets.

Monday’s Asian session was shaky. Gold prices rose, EURUSD was offered and the Nikkei was down. The European open defied expectations. The Paris bourse drifted higher from the open and EURUSD rallied. The New York session saw US dollar buying across the G-10 spectrum.

Tuesday was very quiet in Asia. The release of the Reserve Bank of Australia minutes didn’t rate a ripple. European FX was busy with UK CPI and German ZEW data releases. The New York session was nervous and FX consolidated. A bomb scare in Germany cancelled a soccer match that Angela Merkel was supposed to attend. Kiwi came under pressure following another soft milk auction but overall trading was stifled ahead of Wednesday’s FOMC minutes release.

Wednesday’s Asian, European and New York sessions saw steady demand for US dollars in anticipation of some new, hawkish revelations in the FOMC minutes due later that day. That was wishful thinking. Commodity currencies were softer on lower commodity prices. The fun started after 1900 GMT when the FOMC minutes didn’t provide anything new. And that news led traders to sell dollars, right across the board in what appeared to be a “wash-out” of weak long dollar positions.

Thursday’s Asian session was busy. US dollar selling, post FOMC minutes, continued unabated. In Japan, the BoJ interest rate decision and policy statement ended up being a non-event. GBPUSD mostly ignored the retail sales report. New York sold dollars throughout the session and equities rose. Forget economics 101. In 2015, the new economics means that rising interest rates are good for equities as it is a sign of a strong economy.

The week ahead

This will not be a banner week for FX markets. It never is when it is the week with the US Thanksgiving holiday. FX trading activity will evaporate in New York starting around lunch on Wednesday and not get back to any semblance of normalcy until the following Monday. The loss of that liquidity gives traders around the globe a reason to do nothing and they will.

Tuesday is shaping up to be the busiest day of the week. A speech by the RBA governor starts the day followed by a host of data from the Eurozone, UK and USA. For the most part, traders will be sidelined awaiting the marquee events of December, starting with the ECB meeting on December 3 and the Opec meeting the next day.

– Edited by Clare MacCarthy

Michael O’Neill is an FX consultant at IFXA Ltd

Beware the Thanksgiving squeeze 17Oct15


Beware the Thanksgiving squeeze

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • Today’s US data fail to alter the rate hike narrative
  • December Opec meeting may surprise crude oil traders
  • USDCAD poised for gains despite encouraging Canadian data

By Michael O’Neill

It has been a reasonably active day in FX markets although the overnight ranges remain intact. This morning’s US data did nothing to dissuade traders expecting a Federal Reserve rate hike next month, nor did they change the minds of those who believe the Fed won’t move until 2016.

Meanwhile, oil and loonie traders will be watching for the American Petroleum Institute’s oil inventory data release.

Opec meeting looming large

The Force awakens and no, it has nothing to do with Star Wars Episode Vll. Rather, it is all about Opec’s December 4 response to decreasing oil prices in the face of rising production in a dwindling demand environment.

That supply imbalance has renewed downward pressure on oil prices and woken both oil and loonie bears of late. Luke, Han and Princess Leia are nowhere to be found.

A few of R2-D2’s distant relatives, however, may have been spotted. Photo: iStock

A year ago this month, the Saudi-led Opec cartel decided against using production cuts to shore up the price of crude which had been declining steadily. An economic slowdown in China and the rise of non-Opec production had created a supply imbalance which remains to this day.

At last year’s meeting, the cartel concluded that it was better to maintain market share rather than support non-Opec producers. That decision resulted in a steep plunge in the price of crude, with WTI reaching a low of $42.20/barrel in March and a new low of $37.40/b in late August.

In between, the price ceiling lowered from $61.80 in May and June to $50.50-$52.50 more recently.

American and Canadian oil producers have been hammered on the price declines but that hasn’t stopped them from pumping oil. The EIA forecasted that US crude production increased to 9.3 million barrels/day in 2015, up from 8.3 b/d in 2014.

Lately there is evidence that production is starting to decline and the EIA expects this to be the case throughout 2016. The EIA are also looking for Opec production to rise by 0.2 million b/day in 2016 after an increase of 0.9 million b/d in 2015.

With all this oil sloshing around and China’s economic growth set to slow to 6.5% in 2016, it isn’t too difficult to understand why prices are falling.

WTI is trading at $40.88/b after breaking support in the $42.70/b area and setting its sights on the August $37.70/b low. A break of that level would lead to a test of the 2008 low of $32.40/b. WTI needs a move above $42.70 to negate the short-term downtrend and imply additional $40.00-45.50 consolidation.

The glut of crude has splashed all over the loonie leading to its 16.9% decline since last November. In actual fact, there were a lot of factors contributing to the CAD’s decline, the key ones being the two Bank of Canada rate cuts, lagging Canadian economic growth versus the US, and the prospect of higher US rates.

That was then, this is now

Oil prices began a new push lower at the beginning of November following a late October rally. The retreat broke both the September and October lows and has the August $37.80-90/b bottom in its sights.

The catalyst appears to stem from the belief that the toxic mix of overproduction and slowing demand will persist into 2016, according to reports from Opec and the EIA.

Arguably, October and November production volumes aren’t a surprise to anyone and neither is the evidence of rising capacity constraints. So why sell oil now, ahead of the annual Opec meeting?

Last year, Opec members surprised markets and a repeat performance this year cannot be ruled out

WTI crude oil (four-hour chart):

Create your own charts with SaxoTraderGO click here to learn more

Source: Saxo Bank

Still the best of friends

USDCAD has tracked oil price movements very closely for the past few months and it is no coincidence that WTI is near major support while USDCAD flirts with major resistance.

At issue is the timing of the moves, as there haven’t been any new oil market developments. At the same time, Canadian economic data have been improving, a sign that Canada is benefiting from the modest US recovery.

The employment report has posted gains for four consecutive months, GDP growth is in positive territory, exports have improved slightly, and the housing market remains robust.

It is still cold there though. Photo: iStock

Month-end squeeze risk rising to Defcon 4

For Americans, next week is Thanksgiving and forget a one-day break… for many, this is the major holiday of the year and they intend to make the most of it.

The actual Thanksgiving Day holiday is Thursday and all US markets are closed. Wednesday and Friday may as well be closed, as activity will be dismal. In addition, a lot of traders take the whole week off – especially those who want to get a good spot in line for the Black Friday sales.

Selling WTI and buying USDCAD are popular trades. WTI technicals are bearish pointing to further downside to $37.70/b while USDCAD is targeting 1.3455. Both have impressive moves this month.

The US Thanksgiving holiday(s) will not just delete the American turkey population but will also suck out a ton of liquidity from markets. At the same time, the December 3 European Central Bank meeting, the Opec general meeting on December 4 and the Federal Open Market Committee meeting on December 16 provide enough potential risk to keep a lot of traders on the sidelines, at least those that are still active and have not closed their books for the year.

All of these elements combined raise the risk of a Thanksgiving squeeze to "Defcon 4".

USDCAD technicals

There is no denying that the short term USDCAD technicals are bullish. The uptrend from October 12 is intact while trading above 1.3200 and rallies have been capped by minor resistance at 1.3375 which guards the 2015 peak of 1.3455.

Notably, the 61.8% Fibonacci retracement level of the entire 2002-2007 range sits at 1.3466.

The intraday set-up is interesting. The USDCAD uptrend line from the November 4 low of 1.3050 was broken overnight with the move below 1.3320 which points to further weakness to the 1.3250-70 zone.

If that support level gives way, it suggests further losses to 1.3140 are likely.

USDCAD four-hour with Fibonacci retracement:

Source: Saxo Bank

— Edited by Michael McKenna

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

Loonie on the ropes as WTI wilts 13Nov15


Loonie on the ropes as WTI wilts

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • Poor US data ignored as traders focus on December rate hike
  • EURUSD parity looms as ECB appears poised to boost stimulus
  • FOMC, RBA minutes could skew AUD, USD’s present ranges

Come December, markets expect, US rate hike hawks will finally quit sitting on the fence. Photo: iStock

By Michael O’ Neill

This morning’s US data releases were on the soft side of the equation and largely ignored. Federal Reserve chair Janet Yellen’s statement that the idea of a December rate hike was "live", followed by blowout employment data, seems to have convinced traders that a rate hike is a done deal and today’s data are relatively meaningless

Will Yellen be Santa or Scrooge? For many traders, the wait until the December 16 Federal Open Market Committee meeting is as excruciating as a four-year-old’s wait until Christmas. At the moment, 70% of market participants expect the Fed to hike rates. If this is indeed true and if they have positioned themselves for a rate hike, will the ensuing price action be of the “buy the rumour-sell the fact” variety?

Maybe so, but FX markets are never satisfied and fretting about the next hike will begin as soon as the first one is announced.

Still, 30% of the market is not convinced that the FOMC will move rates in December, in part due to the contradictory messages by various Fed members that have left the G7 currencies to wallow within their recent ranges. Fortunately, the European Central Bank meeting on December 3 is only 20 days away.

ECB president Mario Draghi has put markets on notice that there is additional stimulus in the works which if announced could send EURUSD crashing towards par. The problem for traders is that since both meetings can set the trading tone for the next few months, it is prudent to keep their powder dry until they occur.

That could mean we are in for a long period of skittish trading like we saw this week.

The USDCAD outlook

USDCAD has been locked within a 1.3240-1.3340 trading band this week. The absence of any Canadian data of note left the currency direction to the whims of WTI price movements and US dollar sentiment against the majors. To its credit, the loonie held its own despite the nonfarm payrolls report empowering US dollar bulls.

The week ahead could see the loonie benefit from some domestic data; unfortunately, however, the good stuff won’t be released until Friday.

CPI is forecast to rise 1.1% (year-over-year), core 2.1% which won’t do anything to undermine the CAD.

A drop in retail sales could be damaging unless it is explained away by lower gas prices. The bearish outlook for oil prices combined with the expectations of rising US rates and a sluggishly growing Canadian economy will ensure continuing downward pressure on the Canadian dollar.

It is shaping up to be a long, cold winter for the Canadian dollar. Photo: iStock

USDCAD technical outlook

USDCAD is currently pressuring topside resistance in the 1.3340-50 area with additional (but minor) resistance lurking just behind at 1.3380. If broken, it will be a straight shot to 1.3455-1.3466 and perhaps higher.

At present, 1.3466 represents the 61.8% Fibonacci retracement of the entire 2002-2007 range and it should be sticky. In the past, the 1.3450-70 area provided plenty of support and resistance which may be the case again.

If it breaks, the next key Fibonacci target is 1.4507.

In the short term, the USDCAD uptrend from the beginning of the month remains intact while trading above the 1.3240-60 area which should contain short-term pullbacks if the USDCAD rally is to continue

USDCAD weekly with Fibonacci levels shown:

Create your own charts with SaxoTraderGO click here to learn more

Source: Saxo Bank

The week that was

This week was, for the most part, a bit of a non-event. Sure there were occasional bursts of action, but those bursts were few and far between.

Monday started off with Chinese trade data. The report was slightly weaker than expected but for the most part, didn’t have much of a long-lasting impact. A Reuters “exclusive” stating that the ECB was contemplating even deeper negative interest rates raised a few eyebrows and led to a small drop in EURUSD. All in all, however, FX markets were very quiet across the globe

Tuesday wasn’t any better. Chinese CPI data were weaker than forecasted and, again, ignored by FX traders in Asia and Europe. New York traders sold EURUSD in the early going but the move quickly petered out and the day ended with the G10 currencies closing near to their opening levels.

Wednesday should have been even quieter than Monday and Tuesday due to Diwali and Veterans Day/Remembrance Day holidays, but it wasn’t. In Europe, EURUSD rallied in a short squeeze but couldn’t crack the 1.0800-30 resistance area. Traders were at a loss for why the move occurred. In New York, bond markets were closed and FX desks operated with greatly reduced staff, so that session was a write-off.

On Thursday, a blowout Australian employment report led to a steep rise in AUDUSD despite warnings from economists that the data were suspect. Europe was pretty subdued due to a lack of data and a bevy of Fed speakers on tap later in the day.

The EURUSD was offered to start the New York session, but it didn’t stay that way as another short squeeze took the single currency from 1.0695 to a high of 1.0825. Plunging oil prices (WTI dropped 4%), a lack of major data, weak equity markets, and no fresh direction from the day’s Fed speakers contributed to the move.

The week that will be

The week ahead should have fewer quiet periods. Japan’s GDP print will set the tone in Asia while Eurozone CPI will be the European focus.

On Tuesday, the RBA minutes will be scrutinised for clues as to whether the Reserve Bank of Australia will cut rates at the next meeting (it is expected to). UK and Eurozone ZEW data will be the other key events.

On Wednesday, the FOMC minutes will be released which may provide clues to how “live” the December meeting will be. The Bank of Japan takes center stage in Asia on Thursday with an interest rate decision and policy statement. The week will end with US traders looking ahead to the Thanksgiving holidays.

At that point, all talk of hawks and doves will turn suddenly towards turkeys. Photo: iStock

— Edited by Michael McKenna

Strong USD paints parity target on EURUSD 10Nov15


Strong USD paints parity target on EURUSD

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • G-10 currencies soft as dollar drifts higher
  • EURUSD seems to be heading for parity
  • Keystone pipeline cancellation not end of Canada’s oil sands

The euro and the dollar look headed for parity as the dollar keeps gaining. Photo: iStock

By Michael O’Neill

In 1968, Three Dog Night sang about how “One was the loneliest number”. EURUSD traders may soon be looking at “One”, in other words parity for the euro and the dollar, and there’s no chance that it will be lonely. In fact, it will get all the action it can handle.

Federal Reserve chief Janet Yellen all but confirmed a December rate hike last week. And Friday’s US nonfarm payrolls report suggested that Yellen’s view was a foregone conclusion.

Traders sold euros, which was to be expected, but EURUSD remains well above the 1.0475-1.0500 low achieved in March-April of this year. Back then, the move was in anticipation of a rate cut as early as June. Today, in addition to data and Yellen supporting a US rate hike, the European Central Bank president Mario Draghi got into the action and indicated that the ECB would inject additional stimulus into the Eurozone in December.

So what’s holding EURUSD sellers back? Draghi has a reputation for being cautious and delivering what he promises. The Yellen-led Federal Open Market Committee is not held in the same regard.

Contradicting remarks and speeches from various Fed officials have painted a picture of a fractured, squabbling central bank that is struggling to reach consensus on the US economic outlook. December may be “live”, but months of FOMC indecisiveness and the proximity to year-end may have left more than a few traders sitting on the bench.

If so, there’s a toxic cocktail ready to be served on the December FOMC day. The usual less-than-stellar year-end liquidity, combined with pent up demand to sell EURUSD from sidelined traders, year-end demand for dollars and bearish short-term and long- term technicals paint a target on par for EURUSD.

EURUSD monthly chart with Fibonacci retracement

Source: Saxo Bank

Obama rejects Canada’s Keystone

US President Barack Obama dealt Canada a blow when he rejected the application by Trans-Canada Pipelines to build the Keystone XL pipeline.

Obama said: “America is now a global leader when it comes to taking serious action on climate change.” It still isn’t clear if he was referring to the fight against climate change or the damage that Americans have already wreaked on the planet.

In Obama’s world, massive oil tankers plying the Seven Seas with cargoes of crude or huge train loads of oil rumbling across Middle America are more environmentally friendly than a pipeline. He didn’t say anything about the climate change havoc created by US bombing campaigns in the Middle East, either. In addition, two of the worst greenhouse-gas emitters on the planet, China and India, get a pass.

However, Obama did not ban crude from oil sands, just pipelines. The Toronto Star reported crude oil and equivalent exports have grown nearly 32% since 2011. Americans want the oil and a Republican president may decide that 47,000 new jobs and a $3.2 billion contribution to the US economy will improve the air quality.

USDX climbing Stairway to Heaven (or at least 100.60)

The US dollar index has broken above the 98.30-60 area, which has capped all rallies since May. That move hangs a target on the 2015 peak of 108.70 last seen in March. The intraday uptrend line support is at 99.04, guarding additional uptrend support at 98.10. A move below 99.40 would delay the inevitable move higher and result in a re-test of the 98.90-99.10 level

USDX with bullish set-up highlighted

Source: Saxo Bank

USDCAD outlook

The outlook for the Canadian dollar is tied to general US dollar and oil price movements for the rest of the week. Last week, strong domestic economic reports outweighed weak reports led by the 44,000 gain in Canadian employment.

A large part of the employment gains was due to the federal election, but it was still the fourth consecutive positive report. The narrowing trade deficit reflects growth in non-energy exports and may be a sign that domestic economic growth is benefiting from US economic gains. Still, the only real impact of the improving Canadian data is that it may have helped to slow USDCAD gains. Those gains could accelerate on Friday if the US retail sales are stronger than expected.

Oil prices are another factor. WTI crude is flirting with support in the $42.75/$43.00/barrel area. As long as this level holds, USDCAD gains will lag those against other G-10 currencies.

USDCAD technical outlook

The intraday and short-term USDCAD technicals are bullish, looking for a break above minor resistance in the 1.3310-20 area to extend gains back to the 2015 peak of 1.3455. A move below 1.3240 would lead to further losses to 1.3140-60.

USDCAD 4-hour chart

Source: Saxo Bank

Nebraska landscape. Do Americans think it’s safer to have oil cargoes rolling on the roads and rails across the American heartland than through a pipeline? Photo: iStock

— Edited by John Acher

Michael O’Neill is an FX consultant at IFXA Ltd. Follow Mike or post your comment below to engage with Saxo Bank’s social trading platform.

NFP reaction masks a quality Canadian jobs report 6Nov15


NFP reaction masks a quality Canadian jobs report

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • Stellar US jobs data lifts US dollar
  • Canadian employment report excellent but ignored
  • USDCAD technicals point higher

Now the Fed can act, with impunity. Photo: iStock

By Michael O’Neill

This US nonfarm payrolls report came out as advertised. It was expected to be strong, and boy, was it strong. Janet Yellen will appear prophetic as she has maintained, at least for the past six months, that the US would raise rates in December.

Today’s NFP gives her the ammunition to do so.

Under the radar

Canada released its best employment report in four months, posting a better-than-expected increase of 44,000 jobs and a 0.1% drop in the unemployment rate to 7%. Canada has gained 143,000 jobs compared to a year earlier and best of all, they were all full-time.

Unfortunately, this report was overshadowed by the US NFP report but should serve to slow Canadian dollar losses.

Canadian employment

Source: Statistics Canada/IFXA Ltd

New Canadian Finance Minister

The Canadian economy has new captain steering the ship.

Justin Trudeau’s new Liberal government made a surprisingly brilliant choice for Finance Minister and selected Bill Morneau, an accomplished businessman and former chair of the C. D. Howe Institute (economic think-tank). In doing so, he skipped over a couple of Liberal retreads including a former Finance Minister (Ralph Goodale) and a former Royal Bank of Canada Chief Economist (John McCallum). The only knock against him is that he is a political “rookie” which for many Canadian’s is a blessing.

We’re number, two, we’re number 2

Canadian’s are used to basking in the glow that comes from being America’s largest trading partner, a position that implied a close and favourable two-way relationship.

But that relationship has taken a turn for the worse. It appears that Uncle Sam has his eyes on a “trophy” wife, a younger, hotter and wealthier replacement and that wife is China. China is now the US’ largest trading partner and that relationship will only get stronger if the Trans-Pacific Partnership Agreement is adopted.

US Trade

Source: Globe and Mail

Canadian dollar outlook

The Canadian dollar managed to hold its own (somewhat) following the surge of US dollar buying after the US employment report.

This week’s domestic economic data provided a bit of hope that the Canadian economy may be seeing some benefits from the expanding US economy which should act as a drag against broad-based US dollar gains. However, there isn’t much in the data cabinet next week.

That void leaves the currency direction up to the whims of general US dollar direction and WTI price movements. The US data cupboard is also bare of quality releases until Friday when Retail Sales is released but today’s NFP report should maintain the greenback’s bullish bias and therefore a negative bias on the loonie.

USDCAD technical outlook

The USDCAD technicals are bullish, both short term and intraday. The uptrend from the May low remains intact while trading above 1.2960 while the October uptrend line comes into play in the 1.3090-10 area.

This morning’s break above 1.3210 topped out at resistance in the 1.3290-1.3310 zone and may lead to some 1.3200-1.3300 consolidation next week.

A move above 1.3310 opens up a straight shot to 1.3455.

USDCAD 4 hour with trendlines and expected intraday trading zone

Source: Saxo Bank

The week that was

There was plenty of data and hot air which was expected to provide the drama for this week and for the most part it did.

Monday was a relatively quiet day around the globe, at least in FX circles. The China PMI data didn’t create much of a ripple.

Holiday’s in parts of Europe put a damper on European trading and a variety of EU PMIs had little to no impact on FX. A strong UK PMI print gave cable a boost and led to chatter about the likelihood of a hawkish Bank of England on Thursday. Oops, if they only knew.

The New York session was very dull and the day ended with AUDUSD traders looking for a rate cut from the RBA.

Japan was closed on Tuesday so the RBA got all the attention. It surprised a lot of people and left rates unchanged. AUDUSD dropped and then in the next breath rallied far above the pre-announcement level before drifting lower.

EURUSD was offered ahead of, and then following, Mario Draghi’s speech. Sterling was bid ahead of “Super Thursday”.

Crude oil prices staged an impressive rally during the New York session but not for any discernable reason. The big currency mover was kiwi which got crushed on a lower GlobalDairyTrade price index.

Wednesday was fairly quiet in Asia although USDJPY followed the Nikkei higher and Kiwi remained soft. In Europe, EURUSD was heavy and GBPUSD was drifting higher.

New York bought US dollars following a slightly-better-than expected ADP employment report. Janet Yellen and her “December is live” comment caught markets off guard. The dollar roared higher, particularly against EUR, equities retreated and commodity prices fell.

Thursday was a day of rest, except in the UK. There, it was “Super Thursday” because of the huge Bank of England data dump. The BoE left interest rates unchanged but cut its CPI forecast and expressed concerns about the outlook for global growth. That was enough to spark a quick unwind of long sterling positions.

New York traders stayed on the sidelines awaiting Friday’s payrolls report. And the payrolls report lived up to its advance billing.

The week that will be

This week lacks all the drama of the previous week but may still be fairly volatile. For starters, Monday’s China trade data will add to the fallout from today’s blowout US employment report.

There is more Chinese data on Tuesday which has relevance in light of all the various central Bank’s expressed concerns about “slowing growth in China”. Evidence of improved growth in China plus today’s NFP is a recipe for another leg higher in the US dollar rally.

The Bank of England, Mark Carney and Mario Draghi are in the spotlight on Wednesday which is also a bank holiday in Canada. Friday will be busy with Eurozone GDP data and US Retail sales will close the week.

The US has fallen for the beguiling charms of "a younger, hotter" China. Photo: iStock

— Edited by Martin O’Rourke