For FX traders, it’s the silly season 30Sep16


‘For FX traders, it’s the silly season’

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

· Canada GDP beats forecasts… again

· Friday’s NFP report is the key focus next week

· USD ignores Michigan consumer sentiment beat

By Michael O’Neill

September is over and what has happened to USDCAD? If you use the range from the August 31 close to 1500 GMT on September 30, the answer is nothing: USDCAD is unchanged.

The dip to 1.2820 and the rally to 1.3278 can be chalked up to noise. The Opec pseudo-deal (it has not been studied or ratified) cancelled out a dovish-leaning central bank. The US dollar lost ground against the rest of the majors except for sterling where GBPUSD is in its own post-Brexit world.

Welcome to the Christmas rush

Autumn is barely a week old. The leaves haven’t even started to change colours, yet for FX traders it’s the silly season.

December is notorious for rapidly diminishing liquidity as the market winds down trading and closes the books for year-end. In Canada, October 31 is the year-end for Canadian banks, which tends to impact USDCAD trading in the last two weeks of the month.

Consider it a sort of Hallowe’en for Canadian finance types. Photo: iStock

In addition to the usual US Thanksgiving, Christmas and New Year’s holidays, the US election may be fairly disruptive. A Donald Trump presidency would create huge market volatility as he has vowed to renegotiate or rip up the North American Free Trade Agreement (and other deals), wants to dump Federal Reserve chair Janet Yellen, and says he will declare China a currency manipulator.

Get your Christmas shopping done early, you could become very busy.

Canada GDP soothes rate cut fears

The Canadian dollar was beaten with the ugly stick following disappointing inflation data and comments from the Bank of Canada governor expressing concern about the low level of inflation.

Today’s Canadian GDP data have eased those concerns. Canadian GDP for July rose 0.5%, beating forecasts and following a 0.6% gain in June. TD Bank economists suggest that the data keeps Q3 GDP on track for 3% growth. That is still below the BoC’s forecast of 3.5%.

The risk that the BoC actually cuts rates is pretty low and although today’s data should confirm that view. Nevertheless, governor Stephen Poloz remains concerned about the persistently low level of inflation and may want to keep USDCAD above 1.3000.

Source: Statistics Canada

The week ahead

In horse racing parlance, we are in the home stretch. This week ushers in Q4 and just as a reminder, there are only 83 days until Christmas. The week will start with holidays in Australia, Germany, and a two-day break in China. The Reserve Bank of Australia has its first meeting under governor Philip Lowe; no policy change is expected.

US data releases will come under extra scrutiny as investors seek to determine the prospects for a December rate hike. As usual, the nonfarm payrolls report on Friday will be key.

The forecast is for a gain of 170,000, but since the market is predisposed to a December hike it stands to reason that if the data come in below expectations, the US dollar will sink by far more than it would gain on a strong number.

The week that was

This was the week that a lot of hot air was expected to fill the sails of the good ship S.S. Market… in the end, it did and it didn’t. The 14 Fed speakers (including Yellen), the European Central Bank’s Mario Draghi and the Bank of Japan’s Haruhiko Kuroda didn’t offer anything new…

Fortunately, Opec did.

Monday showed a tentative start to the week. Markets were cautiously awaiting the presidential debate in New York. A rise in New Zealand’s trade deficit led to some NZDUSD selling. USDJPY was heavy ahead of a speech by BoJ Governor Kuroda which led to additional selling in Europe despite his remarks hinting at deeper negative rates.

Renewed Brexit concerns drove GBPUSD down in Europe but the move was reversed by the end of the New York session. USDCAD closed at the high of the day on reports that the Algiers meeting would not result in an agreement (oops). EURUSD peaked mid-morning in New York and then drifted lower until the end of the day

On Tuesday, Asia’s early session was dominated by headlines from the Clinton/Trump debate. FX markets were choppy. By the time Europe walked in, financial markets had concluded that Clinton was the winner and traders could go back to fretting about what really mattered, like Deutsche Bank’s share price weakness and capital concerns.

GBPUSD was just above the low of the day when New York started and managed to rally from 1.2950 to 1.3025. US equities nearly erased all of Monday’s losses, likely due to Trump’s poor performance in the debate. Oil prices declined as hopes for an oil pact from Algiers dimmed further.

Wednesday saw USDJPY, AUDUSD, and NZDUSD rise, supported by an improved tone in risk sentiment. That tone didn’t survive the European open. EURUSD was wobbly due to German banking concerns but Draghi reiterated a need for structural reforms to boost Eurozone growth, which provided some support for EURUSD.

Positive comments from BoE Governor Mark Carney about the long-term prospects for the UK economy gave GBPUSD a short-lived bid. His deputy governor hinted at rate cuts, stating that “a rate cut would depend on economic data”, adding that the Bank would prefer to act preemptively.

EURUSD closed slightly lower in part because of better-than-expected US durable goods results. USDCAD crashed and oil prices soared when Opec announced a production cap deal during the New York afternoon.

A deal that is rapidly becoming rather anticlimactic… Photo: iStock

Thursday, the Opec announcement dominated the Asia session and oil prices rose. AUDUSD and NZDUSD climbed in early trading but retreated during the European session. USDJPY rallied which may have had more to do with half-year end positioning than anything else.

The US dollar ended the New York session on a mixed note. EURUSD erased all its morning gains due to contagion fears from German banking issues and healthy US data releases (GDP, jobless claims, trade) and USDJPY dropped 0.100 points from 101.84 to 100.84 in a risk-aversion move. Oil prices declined from their peak.

— Edited by Michael McKenna

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Loonieviews 30Sep16


Month end pressures undermine greenback

USDCAD Open (6:00 am) 1.3151-55 Overnight Range 1.3142-1.3192 30 Sept 16

FX-At-A-Glance

NOTE: This chart represents gain (or loss) of G10 currencies vs the US dollar from NY close (4:00 pm) to Sept. 30, 6:00 am EDT

The Canadian dollar was an after-thought in overnight trading. USDCAD drifted sideways in a fairly narrow 0.0050 point range. That wasn’t the case for the Australian or New Zealand dollars. AUDUSD declined steadily while NZDUSD rode a roller-coaster. Month-end and quarter-end portfolio rebalancing flows may be behind part of the moves. USDJPY spiked to 101.75 from 100.90 in early Asia trading but that move was revered early in the European session.

FX markets were very active in Europe. EURUSD remained true to form and traded in a tight band. The decline from 1.1225 to 1.1170 may be attributed to on-going concerns about Deutsche Bank. There was a lot of Eurozone data including CPI and German Retain Sales but it didn’t have much if any impact on trading. GBPUSD is back below 1.3000.

Oil prices declined steadily overnight due to a mix of profit taking and a bit of skepticism over the Opec deal, with WTI reaching a low of $47.00. It bounced to $47.64 in early New York trading.

The bounce in WTI hasn’t really translated into Canadian dollar strength this morning. USDCAD traders will key in on this morning’s GDP report. Weaker than expected data (forecast 0.3% in July) will fuel additional USDCAD gains. There is a lot of US data as well which will feed US dollar bulls if it beats expectations.

USDCAD technical outlook.

The intraday USDCAD technicals are bullish while trading above 1.3060 supported by the break above resistance at 1.3120 which keeps the focus on a retest of the 1.3280 area. A break below 1.3060 argues for a revisit with support in the 1.2980-1.3000 area. For today, USDCAD support is at 1.3140, 1.3110 and 1.3060. Resistance is at 1.3200, 1.3240 and 1.3280

Today’s Range 1.3110-1.3190

Loonieviews 29Sep16


Loonie rallies with oil deal

USDCAD Open (6:30 am) 1.3098-03 Overnight Range 1.3050-1.3113 29 Sept 16

FX-At-A-Glance

NOTE: This chart represents gain (or loss) of G10 currencies vs the US dollar from NY close (4:00 pm) to Sept. 29, 6:30 am EDT

The news that Opec had agreed to a production cut deal which was announced yesterday afternoon set the tone for FX markets overnight. It wasn’t a full-blown “risk-on” environment but riskier assets were in demand. USDJPY was the big mover overnight, rallying from 100.65 to 101.74 with the Nikkei gaining 1.39%. It is half year end in Japan (Sep. 30) which may have had an impact. AUDUSD and NZDUSD climbed in Asia but retreated in Europe. Both currency pairs are below their overnight opening levels with Kiwi impacted by the doveish central bank outlook.

The dollar selling enthusiasm evident in Asia went missing in Europe. EURUSD GBPUSD and USDJPY all declined. Eurozone Economic Sentiment data improved but had little impact on FX trading due to the overhang from Brexit.

USDCAD rebounded from yesterday’s 1.3048 low, rising steadily during the Asia session due to a mix of profit-taking and general negative sentiment surrounding the Canadian economy. In addition, the details of the Opec production cap agreement are sketchy and the reality is that the so call agreement is merely a promise to study and evaluate the idea prior to the Opec general meeting on November 30. USDCAD movements will be driven by WTI price swings.

US data releases include Q2 GDP, Jobless claims, pending home sales and PCE. There is another speech from Janet Yellen which will most likely echo yesterday’s remarks. Yesterday she said that “there was no fixed timetable” on a rate increase.

USDCAD technical outlook.

The intraday usdcad technicals are bearish while trading below 1.3110 and supported by the break below 1.3150 which suggests another test of support at 1.3040 and then the 1.2990-1.3010 pivot area. A break below 1.2990 suggests further losses to 1.2850. A move above 1.3120 should extend gains to 1.3150. For today, USDCAD support is at 1.3040 and 1.3000. Resistance is at 1.3120 and 1.3160.

Today’s Range 1.3020-1.3120

Loonieviews 28Sep16


Dollar firms within tight ranges

USDCAD Open (6:00 am) 1.3223-27 Overnight Range 1.3197-1.3233 28Sept 16

FX-At-A-Glance

NOTE: This chart represents gain (or loss) of G10 currencies vs the US dollar from NY close (4:00 pm) to Sept. 26, 6:00 am EDT

USDCAD traded sideways within a narrow range overnight torn between general US dollar sentiment and fluctuating oil prices. The technical bias is bullish after breaking key top-side resistance levels. There isn’t any domestic economic data until Friday’s GDP report

The US dollar managed to squeeze out tiny gains across the G10 in overnight trading. Kiwi was the biggest loser, falling from 0.7303 to 0.7240. There wasn’t an obvious catalyst for the move. Its antipodean colleague is just about flat. USDJPY climbed steadily, in part due to a reduction in safe haven demand and in part due to position adjustments ahead of Japan’s ½ year end.

In Europe, amid-session dip in EURUSD was reversed and the single currency is back above 1.1200. GBPUSD popped above 1.3000 following Mark Carney’s comments alluding to some positive long term prospects for the UK economy.

Oil prices have been choppy as the “Deal or No Deal” gameshow plays out in Algiers. WTI got and end-of-day boost, yesterday, when the API Crude stocks report showed another drawdown. Overnight price action has seen WTI drift higher. There is still hope that Opec will announce plans to reach an accord by the end of the year. WTI has traded in a $44.48-$45.36 range.

The US dollar may get spanked this morning if Durable Goods Order data for august is weaker than the -1.4% that is forecast. And then later on, Janet Yellen is speaking to the Committee on Financial Services about Supervision and Regulation. That speech may be a non-factor for FX traders.

USDCAD technical outlook.

The intraday usdcad technicals are bearish while trading below 1.3240 looking for a break of support at 1.3190 to extend losses to additional support at 1.3160. The short term technical picture is bullish while prices are above the 1.3060-80 zone. In addition, the break of previous resistance at 1.3250 shattered a major resistance level and now targets 1.3310. If broken, next stop is 1.3410.

For today, USDCAD support is at 1.3190 and 1.3160. Resistance is at 1.3240 and 1.3280

Today’s Range 1.3190-1.3280

Negative sentiment undermining Loonie 27sep16


Negative sentiment undermining Loonie

Michael O’NeillMichael O'Neill
FX Consultant / IFXA Ltd
Canada

  • US consumers are confident
  • USDCAD rally stalls again
  • Don’t bet on a BoC rate cut

canada Retail sales were a disappointment in July in Canada. Photo: iStock

By Michael O’Neill

The Loonie got kicked in the teeth on Friday and it is still spitting out pieces today. It started with the release of the inflation data. CPI rose 1.1%, y/y in August, a tad lower than July’s print of 1.3%. Adding insult to injury was a weaker than expected retail sales report. Instead of a modest 0.1% increase in July, retail sales were -0.1%.

USDCAD soared. The reaction was on renewed fears that the Bank of Canada would trim interest rates at its October 19 or December 7 meeting.

That’s not going to happen. Here’s why.

There is a good chance that the inflation and retail sales data don’t tell the whole story.
The newly elected Liberal government announced a fiscal stimulus program in March. A cornerstone of the plan was a change to child benefits which added another $300/month to the child benefit cheques issued to many families, beginning July 20. The impact of this initiative will be noticed in the September data.

Economists at Bank of Montreal point out that the CPI data is not a total surprise to the BoC as they previously stated that readings above the core 2% level were temporary.

BoC governor Stephen Poloz delivered a speech last week where he discussed the perils of low interest rates on savings and the negative impact that they have on retirement savings. He went on to say that the low interest rates are impacting companies decisions to invest and if they do not invest “we will not see the growth, productivity and job creation that we are looking for”.

Poloz doesn’t appear to be too eager to lower domestic rates and if retail sales and CPI rebound next month, he won’t have to.

Loonie tracking oil

West Texas Intermediate (WTI) is in the driver’s seat when it comes to steering Canadian dollar direction and that relationship has been readily apparent for the past week. The September version of the Howie Mandel’s game show ‘Deal or No Deal’ is being played out in media reports from Algiers.

Traders expecting a production cap agreement were disheartened to learn that Saudi Arabia and Iran were not championing an agreement. Oil ministers from both countries reminded markets that the meetings were for consulting and not for decision making but left the door open for an agreement in November.

WTI has been trading erratically within a $42.50-$46.50 since September 20 and that has caused USDCAD to bounce around in similar fashion, trading in a 1.2998-1.3278 during the same time frame. Oil in the barrel is worth two loonies in the bush.

Chart: USDCAD and WTI 30 minute
cadjpy
Source: Saxo Bank

USDX points to higher dollar

The US dollar index has been rather choppy in September. After peaking at 96.32 on September 20, it embarked on a 6-day downtrend which ended yesterday with the break above 95.20. The subsequent bounce stalled at 95.55 which if broken will extend gains back to the peak. A decisive move below 95.00 would negate the topside pressure and target a retest of 94.50

Chart USDX hourly
usdx
Source: Saxo Bank

USDCAD keeps hitting a wall

There is no shortage of USDCAD bulls. Domestic data releases have been disappointing, oil prices are unable to sustain any sort of rally and lately, rate cut fears have permeated the landscape. Despite this sentiment, all attempts to crack resistance in the 1.3250-90 area have been thwarted since mid-March. That same area capped the latest rally. However, as long as the September uptrend line remains intact, the topside will remain vulnerable.

Chart: USDCAD daily
usdcad
Source: Saxo Bank

– Edited by Clare MacCarthy

Loonieviews 27Sep16


Loonie aflutter on oil and debate

USDCAD Open (6:00 am) 1.3211-15 Overnight Range 1.3166-1.3273 27 Sept 16

FX-At-A-Glance

NOTE: This chart represents gain (or loss) of G10 currencies vs the US dollar from NY close (4:00 pm) to Sept. 26, 6:00 am EDT

The Loonie was bouncing off the walls like a toddler in a bouncy castle in overnight trading. The Clinton/Trump debate was the focus in Asia markets. At one point, USDCAD touched 1.3273 triggering stops above 1.3250 although that move is an aberration due to the thin USDCAD conditions in Asia. Trump puckered his lips like a catfish on a sand-bar while shouting “Worst Deal Ever”. Hillary smiled and thought “Gee, I’m going to be president. When the dust had settled the media declared Clinton the victor and USDCAD retreated to 1.3166. Bank of Canada Governor, Stephen Poloz didn’t offer any fresh insight into monetary policy in his speech at Western Washington University.

Later on, the news from Algiers wasn’t all that great. Saudi Arabia reminded oil traders that the meeting was merely a consultative process and oil prices fell. That was enough for USDCAD bulls to re-buy the currency.

Elsewhere, USDJPY traders liked what they saw in the debate. USDJPY recouped all of Monday’s losses in Asia but that move didn’t last and by mid-morning in Europe, it was back to Monday’s closing level. EURUSD was sidelined in Asia and a European attempt to push the single currency above 1.1258 failed, although the retreat was very shallow. GBPUSD rallied to 1.3006 in Asia on a bit of a short squeeze and then retreated back to 1.2955 in Europe.

FX markets will be vulnerable to headlines today. The Opec meeting is still going on which leaves WTI exposed to price swings, and by default USDCAD. Federal Reserve Vice chairman Stanley Fisher is speaking at noon and could remind markets that US rates may rise in December. The US releases Markit Services PMI, Consumer confidence this morning and the A{I weekly Crude stocks change report at the end of the day.

USDCAD technical outlook.

USDCAD technicals are bullish while trading above 1.3170 supported by last week’s break on minor resistance at 1.3080. The break above resistance at 1.3250 overnight may prove to be just a ”blip” in thin Asia markets which will be confirmed if 1.3250 contains topside moves today. For today, USDCAD support is at 1.3170, 1.3140 and 1.3080. Resistance is at 1.3250-70, 1.3290 and 1.3330.

Today’s Range 1.3150 1.3250

Loonieviews 26Sep16


Slow start to noisy week

USDCAD Open (6:00 am) 1.3193-97 Overnight Range 1.3151-1.3198 26 Sept 16

FX-At-A-Glance

NOTE: This chart represents gain (or loss) of G10 currencies vs the US dollar from NY close (4:00 pm) to Sept. 26, 6:00 am EDT

USDCAD is starting the Monday session a tad firmer compared to Friday’s close, on the back of widening Canada and US interest rate spreads due to the prospect of higher American rates and the risk (still low) of a Bank of Canada rate cut. Oil price Jitters have also contributed to the uncertainty with traders leery of “tape bombs” from the Opec meeting in Algiers, that is in full swing.

In Asia, NZDUSD dipped on a weaker than expected Trade report. The move didn’t last and NZDUSD bounced within a 0.7220-0.7250 range. A narrow range was the story for AUDUSD as well. USDJPY weakened, rallied and then weakened again in a choppy 100.30-101.15 range. USDJPY was sold despite a speech from BoJ Governor Kuroda promising to do everything to get inflation on track.

EURUSD traded in a narrow range. The single currency recouped all of its Asia losses and more during the European session supported by broad improvement in the German IFO survey. The overall reading was 109.5 vs. forecast of 106.2. GBPUSD slipped on a soft mortgage report and the usual Brexit implication chatter.

Later today, the European Central Bank’s, Mario Draghi and Ewald Nowontny will be giving speeches. Elsewhere, the first US presidential debate takes place between Hillary the Prevaricator and Donald the Trump.

The risk that oil prices could drop if Opec doesn’t reach a production cap agreement combined with Donald Trump, the repealer of NAFTA, surging in the polls after tonight’s debate will keep USDCAD bid and the focus on 1.3250. Bank of Canada Governor Poloz could undermine the Loonie with his speech today especially if he highlights inflation risks.

USDCAD technical outlook.

USDCAD technicals are bullish. The uptrend from the September low of 1.2822 remains intact while prices are above 1.3020 and Friday’s break above 1.3150 has renewed the focus on the 1.3250 resistance zone. A break above the 1.3250-80 area will extend gains to 1.3450. A break below 1.3120 warns of a dip to 1.3050. for today, USDCAD support is at 1.3150, 1.3120 and 1.3080. Resistance is at 1.3210, 1.3250 and 1.3280

Today’s Range 1.3140-1.3240