Doha may be a Homer Simpson moment
FX Consultant / IFXA Ltd
- Soft US data leads to dollar selling
- Oil prices decline ahead of Doha
- Bank of Canada message was mixed
By Michael O’Neill
The US dollar has taken a turn for the worse this morning but is ending the week mixed. The commodity currency bloc, led by the Australian dollar, are the big winners while the Swiss franc leads Euro and Yen lower.
The dollar didn’t find a friend with today’s US data releases. The Michigan Consumer Sentiment index slipped to 89.7 from 91.0 while both the current conditions and expectations index fell. The Industrial Production data was also disappointing which help spur dollar sales.
Doha or DOH-eh!
Oil prices have been on a tear since reports started trickling out that a production cap freeze or some sort of price support agreement would be announced at the Opec/non-Opec meeting in Doha, Qatar on April 16-17.
Since the beginning of April, WTI has climbed from $35.26/b and peaked at $42.40 on Wednesday as production cap rumours and news leaks filtered into the market.
Prices started drifting lower following the Energy Information Administration data reporting that Crude Stocks rose 6.634 million barrels over the previous week. Headlines warning that a “Doha Deal” may be meaningless led to additional WTI selling. WTI prices have returned to Monday’s levels.
Any announcement of a production cap or freeze or any price support mechanism that doesn’t include Iran, Western producers including the US, Canada, Norway, Britain and France, will be as effective as a screen door on a submarine. WTI will head south of $35.00/b
If so, Monday may be a Homer Simpson moment for Canadian oil price bulls. Instead of celebrating a Doha oil agreement, they may be shouting DOH-eh!
BoC straddles the fence.
Ronald Reagan, former President of the United States, was described as “The Great Communicator”. Mr. Poloz, Governor of the Bank of Canada, can be described as “The Great Obfuscator” and he was in fine form on Wednesday.
The Bank of Canada left interest rates unchanged at Wednesday’s meeting and released the quarterly Monetary Policy Report.
The interest rate statement was either mildly doveish or modestly hawkish, depending upon your bias. The report was riddled with positive points being off-set by negative points.
For the most part, four Canadian Bank economist reactions to the interest rate statement mirrored the message delivered by the BoC.
Two banks appeared to be of the opinion that the message was mildly upbeat with one specifically noting that the message was wrapped in such a way as to avoid appreciating the Canadian dollar.
A third bank felt that the Bank delivered a very mixed message and failed to add any clarity to the outlook. The fourth bank suggested that the Banks reference to the Canadian dollar was a deliberate attempt to remind markets that the rising Loonie would have a negative impact non-energy exports. Homer Simpson, Ronald Reagan – these days let one think of the most famous Americans. Photo: iStock
USDCAD traders appear to have agreed with fourth banks conclusion. Initial USDCAD selling bumped into support at 1.2740 and the currency pair is comfortable above 1.2800. However, that rally may have more to do with rising caution ahead of this weekend’s Opec meeting in Doha, than the BoC statement.
The outlook for USDCAD next week remains tied to oil price movements and general sentiment toward the US dollar. At the beginning of the week it will be all about oil and the results of the Doha meeting. If the Doha meeting disappoints and WTI prices drop, USDCAD will probe resistance in the 1.3000 area. That is an easy call as a drop in oil prices would also lead to renewed risk aversion and additional US dollar strength, as we have seen often this year.
There isn’t much in the way of Canadian data next week until Friday and that data will have minimal impact coming so close on the heels of the April 13, BoC meeting.
USDCAD technical outlook
The intraday technicals are in an uptrend while trading above 1.2810 supported by the break of resistance at 1.2860 which now target a break of resistance at 1.2920 to extend gains to the1.3000-20 area. A move above 1.3020 would target the downtrend line from February which comes into play in the 1.3050-70 zone. A move below 1.2740 sets up a test of long term support in the 1.2550 area.
Source: Saxo Bank. Create your own charts with Saxo Trader click here to learn more
The week ahead
The results of the highly anticipated Doha, Qatar Opec and non-Opec meeting should set the tone for trading with the commodity currency bloc exposed. Other than that, for this week, the needle points to “bland” on the excitement meter.
The week that was
There were enough regional events scheduled this week that should have led to a prolonged period of volatility. They didn’t.
Monday started with China data not being a big deal and USDJPY heading lower, making a fresh 2016 low of 107.62, which raised fears of BoJ intervention. By the end of the New York session nothing was resolved. EURUSD was very choppy around 1.1400 while rising oil prices undermined the US dollar vs. G10 currencies.
Tuesday, AUDUSD was the star performer in Asia on the back of firmer commodity prices, including oil, and improving risk sentiment. Yen traders were fretting about intervention, although none occurred. GBPUSD rallied in Europe despite Brexit issues, supported by a better-than expected inflation report and EURUSD just traded sideways. By the end of the New York day, US equities were up around 1.0%, USDJPY was down and oil was bid on a report that Russia and Saudi Arabia had reached a production freeze deal.
Australia’s labour market report was simply.. intergalactic, ehm.. stellar. Photo: iStock
Wednesday, China Trade data gave AUDUSD a bid of a bid. USDJPY rallied on a rising Nikkei. In Europe, traders decided to buy US dollars due to a dip in oil prices and ahead of US Retail Sales. EURUSD finally broke out of the 1.1340-1.1460 range with a move below 1.1320. The dollar unwind lasted throughout the New York session. Retail Sales missed the forecast. The Energy Information Administration (EIA) confirmed the American Petroleum data of a large build in weekly Crude Oil stocks and the WTI rally was capped at $42.40
Thursday, a stellar Australian labour report gave AUDUSD a bid. Elsewhere, the Monetary Authority of Singapore’s (MAS) decided to set the rate of SGD appreciation to zero. Europe saw a bout of position adjustment ahead of the US inflation report which ended up being soft. The Bank of England meeting was expected to be a non-event and it was. The US dollar ended the New York session consolidating its recent moves.
Friday, the highly anticipated China data (IP, Retail Sales and GDP) failed to ignite any fireworks. For the most part the data was strong which gave NZDUSD a lift. Traders having second thoughts as to the success of the Doha agreement drove WTI prices down and weak US data undermined the US dollar.