Mixed US data muddles dollar outlook 28Oct16


Mixed US data muddles dollar outlook

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

  • US GDP beats forecasts, but consumer sentiment doesn’t
  • USD retreats as mixed data were seen reducing risk of a December Fed hike
  • FOMC meeting will not provide any drama
  • USDCAD topside pressure continues to build

Fickle consumer? Soft US consumer sentiment dampened December

rate-hike expectations. Photo: iStock

By Michael O’Neill

Today’s US GDP and consumer confidence data were supposed to provide rate-hike clarity. They didn’t. Third-quarter GDP beat expectations, and by itself may have been strong enough to trigger a rate hike next week. Except it wasn’t by itself. The Reuters/Michigan consumer sentiment index threw cold water on the positive sentiment from the GDP data when it came in at 7.2, a two-year low.

More stimulus for Canada.

The Federal government may be poised to make another attempt at jump-starting the Canadian economy (and their popularity) on Tuesday, November 1, when finance minister Bill Morneau will table the “fall economic statement”. CBC news reported in September that he may use this as an opportunity to fast-forward billions in infrastructure spending. He may offer details on the planned Infrastructure Bank, a new federal agency, to attract infrastructure spending investment.

On the other hand, it may just be an update from the previous budget filled with forward-looking statements that will be forgotten by the time the 2017 budget rolls around.

USDCAD outlook

There’s a good chance that Bank of Canada governor Stephen Poloz uses a speech in British Columbia on Tuesday to remind markets that domestic rate cuts were discussed. That would offset any thinking that possible stimulus by the Federal government will lead to Canadian dollar gains.

USDCAD has been supported by a dovish BoC, mixed economic data, oil price pressures and the prospect of higher US interest rates. That sentiment won’t change next week.

USDCAD technical outlook

The short-term and medium-term USDCAD technicals are bullish. The sustained break of 1.3305 (38.2% Fibonacci retracement of 2016 range) targets the 50% Fibonacci level at 1.3565. The break of 1.3405 this morning targets resistance at 1.3460 and then 1.3550. A move below 1.3300 would negate the short-term topside pressure and suggest additional 1.3220-1.3420 consolidation.

USDCAD 4-hour chart

Source: Saxo Bank

The week ahead

There is plenty of potential for excitement and drama in the coming week. But it won’t be coming from the Federal Reserve Open Market Committee meeting on Wednesday. The proximity of the November 8 US election and the lack of a press conference eliminate any risk of market-moving news.

The week will start off with potential FX volatility from the usual month-end portfolio rebalancing flows. Another down day in US equity indices would suggest US dollar demand. China Manufacturing PMI reports could unsettle markets if they are below forecasts.

The week will end with the usual US dollar hi-jinks following the nonfarm payrolls release. The US election on the following Tuesday may lead to subdued trading in the afternoon.

In between, there’s still a lot of room for sparks to fly. On Tuesday, the Bank of Japan holds its monetary policy meeting, but is not expected to deliver anything major. The Bank of England meeting on Thursday could create some turmoil if the 17 out of 60 economists surveyed by Reuters are correct in their call for a 25-basis-point rate cut.

The Bank of Japan’s policymakers meet on Tuesday.

Photo: Screengrab from video on BoJ website

The week that was

There wasn’t much of anything this week for traders to sink their teeth into. So, they didn’t. In the words of an FX voice broker from many years ago, “empty and looking” sums it up.

Monday was a holiday in New Zealand, so FX markets were a tad slow off the mark. USDJPY traders didn’t care too much about Japan’s better-than-expected manufacturing PMI data. Manufacturing PMI reports came from everywhere in Europe. Traders took a shine to the Eurozone data and pushed EURUSD to 1.0900 from 1.0858. GBPUSD followed EURUSD higher. Those moves were erased in New York on the back of strong US PMI data leading to a higher chance of a December rate hike. Bank of Canada “misspeak” sent USDCAD on a roller-coaster, down and then back up.

On Tuesday, the antipodeans snapped their losing streak and rallied. USDJPY continued to move higher, supported by the earlier US data. EURUSD posted marginal gains on better-than-expected German IFO data, but trading was sluggish ahead of speeches from the Bank of England’s Mark Carney and ECB president Mario Draghi. Cable took a beating before Carney started talking and then rallied when the BoE governor dropped hints that additional rate cuts were not a certainty. Draghi defended the ECB but didn’t say anything to have an impact on EURUSD trading. By mid-morning, the US started to lose ground on poor consumer confidence data and ended the day lower than the where it was when New York opened. A drop in the WTI oil price sparked by reports that Iran wanted to be exempted from production caps accelerated on news of a large build-up in US inventories.

On Wednesday, AUDUSD was bought due to above-forecast inflation data reducing the risk of a near-term rate cut. Conversely, Kiwi was under pressure because of expectations of a near-term rate cut. EURUSD rallied in Europe and peaked mid-morning in New York, supported partly by a rumour that the ECB would keep buying bonds beyond the March 2017 end date. The GBPUSD rally capped out at 1.2250. USDJPY traded higher, buoyed by rising US rate hike expectations. Oil prices spiked when the US Energy Information Administration’s crude stocks report contradicted the previous day’s American Petroleum Institute reading. That rally ended as quickly as it started.

On Thursday, Asia traders stayed close to home and kept the dollar within narrow ranges. Sterling was the life of the party in Europe when GDP numbers were better than expected. That balloon burst as soon as the market realised that with Brexit negotiations looming the data was useless. In New York, jobless claims and durable goods did not provide much inspiration as they were close to forecasts. The steep jump in pending home sales tipped the scales in favour of the greenback. The dollar ended the day with gains across the board.

On Friday, Sterling fell notably against the USD after a Northern Ireland court rejected challenges to Brexit. According to the judge, the law does not restrict UK prime minister Theresa May’s ability to negotiate an exit from the European Union. US GDP data surprised to the upside, while consumer sentiment was softer than expected.

Belfast. A Northern Ireland court’s rejection of legal challenges to Brexit cleared away another obstacle to the UK leaving the EU, and hammered sterling. Photo: iSto

— Edited by John Acher

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

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Loonie takes it on the beak 21Oct16


Loonie takes it on the beak

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

· Weak Canadian data crush Loonie

· Next week’s FX moves down to data, not central banks

· USDCAD breaks out of six-month range

By Michael O’Neill

It has been an interesting week. The Bank of Canada opened the door to a rate cut and the European Central Bank (sort of) put tapering on the table. The loonie took the news on the beak while the single currency reluctantly inched lower.

The loonie just can’t seem to keep its head above water… Photo: iStock

BoC doves swarm loonie bulls

USDCAD bears were firmly in control on Wednesday. Oil prices were steadily sliding after making a new 2016 high at $51.91/barrel (WTI) and the currency pair was fresh off of shredding support levels at 1.3180 and 1.3070. At the time, it appeared that the key pivot area of 1.2990-1.3010 would give way.

Suddenly, a dove swooped down from the heavens (or rather Ottawa) and took a huge bite out of the USDCAD bears.

“Given the downgrade to our outlook, [the] Governing Council actively discussed the possibility of adding more monetary stimulus at this time, in order to speed up the return of the economy to full capacity” – BoC MPR Opening statement

With these words, BoC governor Stephen Poloz turned the tide of dollar selling and hung a target on the 1.3575 level. A Canadian rate cut, previously seen as a very remote risk, became a very distinct possibility.

That view was reinforced on Friday morning. Canadian Retail Sales were forecast to rise 0.3%, month/month in August with the risk that the data outperformed the forecast. They didn’t. Instead, Retail Sales declined 0.1%.

Making matters worse, the expected gain in inflation for September, not only failed to materialise, but missed the forecast. It was still better than the August result but that was only a minor consolation.

CPI and Retail Sales:

Source: Statistics Canada

The future is grim for the Canadian dollar. USDCAD has a historical tendency to rally in Q4, which could be exacerbated by rising expectations for a US rate hike. The prospect of widening CAD/US interest rate differentials should keep USDCAD bid.

The wild card is oil prices. WTI has made fresh 2016 highs on talk of production caps or cuts. The ability of oil to extend gains is uncertain as higher prices will attract new supply even as demand remains soft.

USDCAD technical outlook

USDCAD technicals are bullish, both short- and medium-term. The decisive break above the 38.2% Fibonacci retracement level of the 2016 range (1.3315) has turned the spotlight on the 50% level at 1.3575.

The short-term uptrend line from the September low remains intact while prices are above 1.3020. The long term uptrend line from the May 2016 low comes into play at 1.2940.

Intraday trading should see USDCAD retracements restricted to the 1.3260-1.3315 support area.

USDCAD daily:

Create your own charts with SaxoTraderGO click hereto learn more

Source: Saxo Bank

The week ahead

The FX week will get a later start as New Zealand takes the day off to celebrate Labour Day. The release of Japanese trade data should give USDJPY traders something to work with. There are a slew of Manufacturing PMI reports to be released, as well as a couple of Fed speakers

FX activity should increase on Tuesday due to German IFO data, a rash of US economic reports and speeches from Bank of England governor Mark Carney and his European Central Bank counterpart, Mario Draghi.

Australia CPI data will be the focus in Asia markets on Wednesday. The European and US sessions should be relatively tame unless there are more surprises from the Energy Information Administration’s weekly crude report.

New Zealand trade data will dominate early trading in Asia on Thursday. Sterling traders will be watching for Q3 GDP data. The US Durable Goods report, jobless claims, and home sales could make for an entertaining Thursday during the New York session.

Friday, Eurozone Consumer Confidence, US GDP and Michigan consumer sentiment could make for an choppy end to the weak if the reports deviate substantially from the forecasts.

The week that was

The highlight of the week in the US was the third presidential debate. For most, that was a scrape the bottom-of-the-barrel selection and of little importance to FX markets. The ECB meeting was eagerly anticipated and this meeting was worth the wait.

Monday, Asia traders digested Janet Yellen’s comments from the October 14 speech and didn’t like what they ate. (heard) The initial move was to buy US dollars and they did. The move didn’t last. European traders bought EURUSD supported by Eurozone inflation data and in anticipation of the upcoming ECB meeting on Thursday.

The normally ignored NY Empire State Manufacturing report also had a moment in the spotlight. The far weaker than expected data triggered a rash of US dollar selling versus the majors. Fed vice-chair Stanley Fisher’s speech didn’t offer anything new…

Tuesday’s Asia session led off with a speech by Reserve Bank of Australia governor Phillip Lowe, who appeared to adopt a more cautious approach to lower interest rates. AUDUSD rallied. Kiwi followed suit on higher-than-expected New Zealand inflation. USDJPY couldn’t get traction outside of a narrow 103.65-104.20 band.

US CPI data were slightly below forecasts but didn’t appear to have much of an impact on FX markets. GBPUSD soared on a short-squeeze move triggered by news that the UK parliament would debate Brexit. EURUSD and USDJPY see-sawed within narrow bands. Kiwi climbed following a strong Global Dairy Trade Auction result.

The day ended with the API crude stocks report showing a healthy drop in inventories and lifting WTI.

Wednesday, sterling retreated on profit-taking after a big rise during the previous New York session but that move was reversed in Europe. Kiwi extended its GDT-induced rally with an added boost from rising oil prices. China, somehow managed to deliver Q3 GDP data right on the numbers that were forecast, avoiding an embarrassing miss.

The AUDUSD rally ran out of steam at 0.7730 and drifted lower in a move that continued right through until the end of day in New York. There was chatter about a massive Saudi Arabia bond offering. At the time it was expected to be $15.0 billion but when it closed, $17.5bn had changed hands.

The Saudi bond issue was the story of the week in fixed income markets. Photo: iStock

In Europe, GBPUSD went on another tear higher when a government lawyer said that not only would parliament debate Brexit, they have to ratify the deal. EURUSD traded in a 1.0955-1.1005 range with traders content to wait for Thursday’s ECB meeting .

In New York, the Energy Information Administration (EIA) announced a 5.2-million-barrel decline in crude stocks which sent oil and the Canadian dollar skyward. Oil managed to keep its gains but the loonie got smoked when the BoC governor admitted that a rate cut was discussed at the day’s policy meeting.

Thursday, weaker than expected Australian employment data drove AUDUSD from 0.7730 to 0.7630 by the end of trading in New York. The US dollar inched higher as traders concluded that Hillary Clinton won the third debate. Weaker than expected UK retail sales data weighed on Sterling while EURUSD just marked time until the ECB policy decision and press conference.

During the press conference, Super Mario became Marble-mouthed Mario when he mangled his message. That resulted in erratic EURUSD trading. After the dust had settled, EURUSD was threatening to revisit the March 9 low of 1.0820

On Friday, Asia and European FX markets did not deliver up any surprises although EURUSD dropped to a seven-month low as Mario Draghi’s insinuation that the ECB would entertain some kind of tapering.

All traders heard was “lower rates for longer”.

— Edited by Michael McKenna

US dollar remains firm as oil hangs on to gains 14Oct14


US dollar remains firm as oil hangs on to gains

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

·

· US retail sales deliver expected results, Michigan consumer confidence doesn’t

· Oil price rally may be running out of steam (oil?)

· Next week’s central bank meetings may deliver some FX excitement

Michigan theatre – maybe one can get surprised there as well. Photo: iStock

By Michael O’Neill

A nasty surprise from the Michigan Consumer confidence Index (Actual 87.9 vs. forecast 91.9) took the bloom off the USD and led to profit taking selling. Still, the USD is finishing the week with healthy gains against the G10 currencies. Only the AUD and CAD are higher on the week and that is because of the oil price rally.

Oil rally: Real or a mirage?

Oil prices have been on a tear. WTI has been in a medium term uptrend since March and an intraday uptrend that began in the middle of September. At that time the low was $42.47. It rallied to $51.57 on October 10, a gain of 21.4%.

The reality is that the rally began when Opec announced a production cap agreement at a meeting in Algiers, in September. It accelerated on October 10 when Russia’s President Vladimir Putin agreed to join the party.

The Saudi oil minister, Khalid Al-Falih, (certainly “talking his book”) predicted “it is not unthinkable that we could see $60.00 by year end” according to Bloomberg. BP’s President, Bob Dudley got into the act suggesting that oil prices should be in the $55-$70/b region for the rest of the decade. Both comments led to oil price gains.

The mirage is that there isn’t any evidence that the current state of oil over-production in the face of dwindling demand has diminished. Arguably, it has gotten worse.

Adding oil to the fire? Photo: iStock

Opec announced that crude oil output in September reached a new record of 33.64 million barrels per day. World oil production reached 97.2 mb/d, a 200,000-barrel increase from August. The Paris based International energy Agency (IEA) said that for the rest of 2016 oil demand will decline to 1.2m b/d from the 1.3m b/d forecast they made in September. Making matters worse, the predict that the oil market will be oversupplied throughout the first half of 2017.

The International Monetary Fund downgraded its global growth forecast to 3.1% from 3.3% on October 6 citing modest US growth and a meager recovery in the Eurozone.

WTI snapped the uptrend line from September 28 when prices broke below the $49.90-$50.10 level, suggesting that a test of support at $49.20 is in the cards. If this level gives way, WTI should see a quick return to the $46.40 zone.

Chart OILUS continuous:

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

The week ahead

Next week promises a little something for traders in all the regions, although market moving US data is rather light.

Monday will start with Asia digesting Janet Yellen’s Friday afternoon speech in Boston. If it is benign, there isn’t a lot of anything to stoke trading fires until Europe opens. Eurozone CPI will be closely watched especially because of the European central bank policy meeting on Thursday.

Tuesday, Aussie traders will contend with a speech by Reserve Bank of Australia Governor Phillip Lowe and the release of the RBA minutes. Kiwi traders will keep their eye on domestic inflation data. There is a lot of UK economic data for sterling traders to ignore since Brexit is the only thing that matters. US CPI data could really boost US dollar demand if it surprises to the upside

Wednesday, the RBA’s Mid-year Economic and Fiscal Outlook is released, giving Aussie traders something to read if the China data (Retail Sales, Industrial Production and GDP) doesn’t wreak havoc in the markets. The Eurozone will be quiet as markets await the ECB policy meeting the next day. The Bank of Canada delivers its policy statement which risks undermining the Canadian dollar if it has a doveish bent.

Thursday, the Asia session will deal with Australia employment data. In Europe, UK data (retail sales) will be ignored as all the attention will be on Mario Draghi and the ECB.

If Thursday’s ECB meeting doesn’t detonate any bombshells, Friday will be very quiet.

The week that was

The bar was set fairly high for FX excitement this week. That was due to a holiday in Japan and a partial financial market holiday in the US on Monday and void in tier one data releases until Friday’s US retail sales and consumer sentiment reports. Even the mid-week release of the Federal Open Market Committee minutes wasn’t getting hearts aflutter. Fortunately for traders, the high bar was not much of a challenge.

Monday’s Asia session had a lot to contend with. China traders returned to work after a week long holiday and promptly drove the yuan to a six year low. Traders were digesting the ramifications to the rate hike debate from Friday’s lower than expected nonfarm payrolls report and the results of the second Clinton/Trump debate. The initial move was to sell EURUSD and USDJPY. By the Europe walked in, Hillary Clinton was viewed as the debate winner. The US dollar rallied.

The US market wasn’t a quiet as one would assume on a partial holiday. Russian President Vladimir Putin saw to that when he announced that Russia would join with Opec in a production freeze or production cut. Oil prices screamed higher and USDCAD bulls nearly choked on their turkey.

Tuesday, the Assistant Governor of the Reserve Bank of New Zealand opined about the necessity of a weaker Kiwi. He got it. NZDUSD dropped from 0.7142 to 0.7640 by the end of the New York session. Asia traders continued to sell EURUSD and buy USDJPY. Oil prices traded sideways.

Sterling was uneventful until Europe started. That’s when a newbie Bank of England MPC member made an unflattering comment about the pound. Sterling had a “Brexit” moment and plunged to 1.2090 from 1.2330. The US dollar ended the New York session on a positive tone supported by rising US rate hike expectations.

Wednesday, the spectre of the FOMC minutes (released in the New York afternoon) haunted traders for the entire day. They feared that the minutes might be a tad more hawkish than expected which supported the US dollar in Asia, Europe and New York trading. For the record, they weren’t.

In Europe, Sterling traders were thrown a life-line by UK prime Minister May. She agreed to a parliamentary debate on Brexit and GBPUSD rallied. The New York session ended with a firmer US dollar as most concluded that the minutes left the door ajar for a December rate hike.

Thursday, FX markets were skittish. It started when China posted ugly import and export data. That news fed fears that additional China economic weakness could spill over into other nations and prevent the US from increasing interest rates.

Sure, it’s a bit of a stretch but the US dollar had rallied strongly since the beginning of October and traders apparently wanted an excuse to book some profits. Another strong US jobless claims report may have helped to ease some of the concerns. The New York session ended with traders looking ahead to US Retail Sales and consumer confidence data.

Friday saw a more positive tone in Asia FX markets thanks to better than expected China CPI data. That news gave AUDUSD a lift. USDJPY traded higher throughout the day. In Europe, Mark Carney’s comments stating that the BoE “wasn’t indifferent” to the level of sterling spooked GBPUSD bears and the currency recovered all of its overnight losses. US Retail Sales data was as expected. Traders were awaiting a Janet Yellen speech in the New York afternoon.

— Edited by Clemens Bomsdorf

US dollar remains firm as oil hangs on to gains


US dollar remains firm as oil hangs on to gains

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

·

· US retail sales deliver expected results, Michigan consumer confidence doesn’t

· Oil price rally may be running out of steam (oil?)

· Next week’s central bank meetings may deliver some FX excitement

Michigan theatre – maybe one can get surprised there as well. Photo: iStock

By Michael O’Neill

A nasty surprise from the Michigan Consumer confidence Index (Actual 87.9 vs. forecast 91.9) took the bloom off the USD and led to profit taking selling. Still, the USD is finishing the week with healthy gains against the G10 currencies. Only the AUD and CAD are higher on the week and that is because of the oil price rally.

Oil rally: Real or a mirage?

Oil prices have been on a tear. WTI has been in a medium term uptrend since March and an intraday uptrend that began in the middle of September. At that time the low was $42.47. It rallied to $51.57 on October 10, a gain of 21.4%.

The reality is that the rally began when Opec announced a production cap agreement at a meeting in Algiers, in September. It accelerated on October 10 when Russia’s President Vladimir Putin agreed to join the party.

The Saudi oil minister, Khalid Al-Falih, (certainly “talking his book”) predicted “it is not unthinkable that we could see $60.00 by year end” according to Bloomberg. BP’s President, Bob Dudley got into the act suggesting that oil prices should be in the $55-$70/b region for the rest of the decade. Both comments led to oil price gains.

The mirage is that there isn’t any evidence that the current state of oil over-production in the face of dwindling demand has diminished. Arguably, it has gotten worse.

Adding oil to the fire? Photo: iStock

Opec announced that crude oil output in September reached a new record of 33.64 million barrels per day. World oil production reached 97.2 mb/d, a 200,000-barrel increase from August. The Paris based International energy Agency (IEA) said that for the rest of 2016 oil demand will decline to 1.2m b/d from the 1.3m b/d forecast they made in September. Making matters worse, the predict that the oil market will be oversupplied throughout the first half of 2017.

The International Monetary Fund downgraded its global growth forecast to 3.1% from 3.3% on October 6 citing modest US growth and a meager recovery in the Eurozone.

WTI snapped the uptrend line from September 28 when prices broke below the $49.90-$50.10 level, suggesting that a test of support at $49.20 is in the cards. If this level gives way, WTI should see a quick return to the $46.40 zone.

Chart OILUS continuous:

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

The week ahead

Next week promises a little something for traders in all the regions, although market moving US data is rather light.

Monday will start with Asia digesting Janet Yellen’s Friday afternoon speech in Boston. If it is benign, there isn’t a lot of anything to stoke trading fires until Europe opens. Eurozone CPI will be closely watched especially because of the European central bank policy meeting on Thursday.

Tuesday, Aussie traders will contend with a speech by Reserve Bank of Australia Governor Phillip Lowe and the release of the RBA minutes. Kiwi traders will keep their eye on domestic inflation data. There is a lot of UK economic data for sterling traders to ignore since Brexit is the only thing that matters. US CPI data could really boost US dollar demand if it surprises to the upside

Wednesday, the RBA’s Mid-year Economic and Fiscal Outlook is released, giving Aussie traders something to read if the China data (Retail Sales, Industrial Production and GDP) doesn’t wreak havoc in the markets. The Eurozone will be quiet as markets await the ECB policy meeting the next day. The Bank of Canada delivers its policy statement which risks undermining the Canadian dollar if it has a doveish bent.

Thursday, the Asia session will deal with Australia employment data. In Europe, UK data (retail sales) will be ignored as all the attention will be on Mario Draghi and the ECB.

If Thursday’s ECB meeting doesn’t detonate any bombshells, Friday will be very quiet.

The week that was

The bar was set fairly high for FX excitement this week. That was due to a holiday in Japan and a partial financial market holiday in the US on Monday and void in tier one data releases until Friday’s US retail sales and consumer sentiment reports. Even the mid-week release of the Federal Open Market Committee minutes wasn’t getting hearts aflutter. Fortunately for traders, the high bar was not much of a challenge.

Monday’s Asia session had a lot to contend with. China traders returned to work after a week long holiday and promptly drove the yuan to a six year low. Traders were digesting the ramifications to the rate hike debate from Friday’s lower than expected nonfarm payrolls report and the results of the second Clinton/Trump debate. The initial move was to sell EURUSD and USDJPY. By the Europe walked in, Hillary Clinton was viewed as the debate winner. The US dollar rallied.

The US market wasn’t a quiet as one would assume on a partial holiday. Russian President Vladimir Putin saw to that when he announced that Russia would join with Opec in a production freeze or production cut. Oil prices screamed higher and USDCAD bulls nearly choked on their turkey.

Tuesday, the Assistant Governor of the Reserve Bank of New Zealand opined about the necessity of a weaker Kiwi. He got it. NZDUSD dropped from 0.7142 to 0.7640 by the end of the New York session. Asia traders continued to sell EURUSD and buy USDJPY. Oil prices traded sideways.

Sterling was uneventful until Europe started. That’s when a newbie Bank of England MPC member made an unflattering comment about the pound. Sterling had a “Brexit” moment and plunged to 1.2090 from 1.2330. The US dollar ended the New York session on a positive tone supported by rising US rate hike expectations.

Wednesday, the spectre of the FOMC minutes (released in the New York afternoon) haunted traders for the entire day. They feared that the minutes might be a tad more hawkish than expected which supported the US dollar in Asia, Europe and New York trading. For the record, they weren’t.

In Europe, Sterling traders were thrown a life-line by UK prime Minister May. She agreed to a parliamentary debate on Brexit and GBPUSD rallied. The New York session ended with a firmer US dollar as most concluded that the minutes left the door ajar for a December rate hike.

Thursday, FX markets were skittish. It started when China posted ugly import and export data. That news fed fears that additional China economic weakness could spill over into other nations and prevent the US from increasing interest rates.

Sure, it’s a bit of a stretch but the US dollar had rallied strongly since the beginning of October and traders apparently wanted an excuse to book some profits. Another strong US jobless claims report may have helped to ease some of the concerns. The New York session ended with traders looking ahead to US Retail Sales and consumer confidence data.

Friday saw a more positive tone in Asia FX markets thanks to better than expected China CPI data. That news gave AUDUSD a lift. USDJPY traded higher throughout the day. In Europe, Mark Carney’s comments stating that the BoE “wasn’t indifferent” to the level of sterling spooked GBPUSD bears and the currency recovered all of its overnight losses. US Retail Sales data was as expected. Traders were awaiting a Janet Yellen speech in the New York afternoon.

— Edited by Clemens Bomsdorf

Loonieviews 7Oct16


Sterling flash crash warns all is not right with the world

Michael O’Neill

FX Consultant / IFXA Ltd

Canada

·

· GBP flash crash may be an evil omen

· Headline Canada employment number masks soft report

· Wait for FOMC minutes will stifle trading early next week.

What a crazy week – GBP down, FTSE up. Photo: iStock

By Michael O’Neill

The overnight "flash-crash" in GBPUSDmay be a sign of things to come. Consider this, if the British pound is falling out of bed due to increased fears of a negative impact on the UK economy from Brexit, why would you buy UK equities. The FTSE100 index is up 0.70% which is a tad perplexing. October is known for stock market crashes, so why tempt fate?

Alternative universe for Loonie

USDCADis probing levels not seen since the middle of March. At that time, WTIoil was trading at $38.50/barrel. Today, WTI is trading at $50.70. Something is amiss.

Canadian data releases since September have, for the most part, shown a steadily, if unimpressive, improvement in the domestic economy. That may be a mirage. The September employment report showed an increase of 67,200 jobs and USDCAD dropped. The problem is that the headline is misleading. 50,100 of the new jobs are in the self-employed category which is an indication of former full-time employees trying to earn a living.

The Bank of Canada remains concerned about Canada’s persistent low level of inflation and on September 20 pushed back its expectations for a domestic recovery.

The oil price rally should be providing support to the Canadian dollar. At the moment it isn’t. Some speculate that the news of a new Federal government carbon tax will have a negative impact on Canada’s energy industry as it will raise the price of domestic crude significantly if the proposed $50 per metric ton by 2022 is implemented.

USDCAD has been in a 1.2650-1.3300 range since May and retreated from significant resistance just below the 1.3315 area which represents the 38.2% Fibonacci retracement of the 2016 trading band. The uptrend line from the September low remains intact while prices are above 1.3050.

The risk of rising US rates and Canadian economic growth continuing to lag that of the US suggests that as long as prices are above 1.3050 the risk is for additional gains to the 1.3500-1.3800 level. However, if WTI prices continue to climb, 1.3315 will remain major resistance.

Chart Oil and USDCAD

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

The week ahead

This week will be a short one for Canadians (Thanksgiving) and Americans (Columbus Day).GBPUSDtraders will still be dealing with the fall-out from the Asia collapse. Elsewhere, there isn’t a whole lot of major economic data releases to drive trading until US Retail Sales on Friday.

On Wednesday, the minutes from the Federal Open Market Committee meeting on September 21st will be released. Various Fed speakers had dropped hints of a rate increase prior to the meeting so analysts will try to gauge sentiment for a December move.

The week that was

The week of a nonfarm payrolls release tends to see jerky trading as positions are adjusted to reflect prevailing sentiment. That was certainly the case this week except for the British pound. GBPUSD was offered all week and collapsed on Friday

On Monday, Asia traders were not singing “rule Britannia” but the Britain ruled the FX markets nonetheless. UK Prime Minister Theresa May told the Conservative conference on the weekend that Article 50 would be invoked in March. In a thinner than usual market due to holidays in China and Australia, GBPUSD started to slide. The slide picked up speed when the European session began. Oil prices rose on optimism that the previously announced Opec production cap would be effective. The US dollar caught a bid following a stronger than expected ISM PMI report and finished the day on firm footing.

Tuesday, Asia traders continued to buy US dollars. Aussie and Kiwi were sold while USDJPY rallied. EURUSD and GBPUSD were fairly steady until Europe opened. Then both currency pairs were sold. Rising US rate hike sentiment and increased fears of an acrimonious Brexit negotiation were behind the moves. More hawkish rhetoric from Richmond Fed President Lacker kept rate hike concerns on the front burner and EURUSD under pressure. That changed when Bloomberg reported “sources” at the ECB talking about building a consensus for tapering. EURUSD soared. GBPUSD traded down all session. Oil prices spiked at the end of the day on an API report of a large crude draw-down. Gold broke major support in the $1,306.00 area and plummeted.

Wednesday, Asia saw continued NZDUSD selling due to a poor GlobalDairyTrade index results that were released during the New York session. The ECB taper talk was front and center and EURUSD declined. AUDUSD followed Kiwi lower while ignoring a strong Retail Sales report.

GBPUSD got crushed in Europe due to ongoing concerns about Brexit negotiations but profit taking in New York lifted it off the lows and took it back to 1.2745. EURUSD traded lower within a narrow declining band, undermined by strong US data (Trade, ISM non-manufacturing) and ECB tapering concerns. USDJPY punched above 103.20 and hasn’t looked bank since. Oil prices got an “extra” lift from a decline in US crude inventories as reported by EIA., which corroborated Tuesday’s API data.

Thursday, FX trading was subdued in Asia. Traders ignored a better than expected Australia trade report and sold AUDUSD. USDJPY continued to climb steadily supported by a mix of hawkish Fed rhetoric and diminished rate cut fears in Japan. European traders sold EURUSD and GBPUSD. It didn’t help that German Chancellor Angela Merkel admitted that Brexit negotiations wouldn’t be easy. In New York, a strong jobless claims report fueled additional US dollar buying ahead of Friday’s nonfarm payrolls report. GBPUSD came under renewed selling pressure. Oil prices broke the $50.00/b level which failed to provide support to the Canadian dollar USDCAD. The day ended with the US dollar posting gains against all the G10 currencies except for UDUSD and NZDUSD. Gold prices were probing support at $1,255 by the end of the day.

Friday, GBPUSD collapsed in Asia. Fat-fingers or faulty algorithms or something else drove GBPUSD from 1.2621 to a low of either 1.1491 (Reuters) or 1.1841 (EBS) in minutes. It had bounced back to 1.2360 by the New York start. US NFP disappointed.

If only this oil could fuel the world economy… Photo: iStock

— Edited by Clemens Bomsdorf

Loonieviews 3Oct16


USDCAD falls as oil rises

USDCAD Open (6:30 am) 1.3073-77 Overnight Range 1.3072-1.3136 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

USDCAD has started the day at the low of the overnight session, undermined by a rally in oil prices. It was a fairly subdued start to the first trading day in October , in part due to holiday’s in Australia, China and Germany.

USDJPY opened lower in Asia but rallied when the Nikkei Manufacturing PMI came in at 50.4. AUDUSD and NZDUSD traded sideways in Asia and rallied in Europe on firmer commodity prices. GBPUSD gapped lower when Asia opened following British Prime Minister May’s comments over the weekend that Article 50 would be triggered at the end of March 2017.

GBPUSD was whacked again, when UK traders started their day. PM Mays comments suggest that both the UK and the EU will adopt hardline negotiating tactics. Fears that Deutsche Bank would implode and spark a Lehman like crisis abated as negotiations continue. Asia equity markets rose as did the UK FTSE100, which gained 1.12% A bump in UK PMI to 55.4 from 52.1 may have helped. Eurozone Markit PMI came in as forecast at 52.6. EURUSD remained unimpressed and traded in a narrow 1.1220-40 band.

Oil prices climbed to $48.82 from $47.75, apparently still benefitting from the news that Opec has agreed to a production cap. Traders ignored a Reuters story stating that Opec’s September output would reach its highest level in recent history on the back of increased production from Iraq and Libya.

There isn’t any Canadian data due today. The US releases ISM Manufacturing PMI and Construction Spending, both of which are expected to increase.

USDCAD technical outlook.

The intraday USDCAD technicals are bearish while trading below 1.3140. The down move has halted right on hourly support at 1.3065 but broken below the 4 hour uptrend line which came into play at 1.3090. A decisive break of 1.3060 will extend losses to 1.2990-1.3000. A break above 1.3140 will negate the downward pressure and refocus on the 1.3250 resistance area. For today, USDCAD support is ta 1.3060 and 1.3010. Resistance is at 1.3090 and 1.3140.

Today’s Range 1.3060-1.3140