Trump trade tweaks trash loonie 28Apr17

Trump trade tweaks trash loonie

Michael O’Neill

FX Trade Strategist /


* Canada GDP data came in flat and failed to boost CAD

* US softwood lumber duty sends USDCAD soaring

* US GDP weaker than expected but offset by a higher employment cost index

By Michael O’Neill

When Canada’s prime minister paid homage to president Trump in Washington on February 13, Trudeau reportedly received assurances from the president that the US only wanted to tweak the North American Free Trade Agreement.

More specifically, Trump said “we have a very outstanding trade relationship with Canada. We’ll be tweaking it. We’ll be doing certain things that will benefit both of our countries. Our relationship with Canada is outstanding. We are going to work together to make it even better.”

The PM, and many others in Canada, breathed a huge sigh of relief that Canada’s economy would be spared “the wrath of Trump.”

Alas, it was not to be. Imagine the surprise in Ottawa on April 24 when US Commerce Secretary Ross slapped a 20% countervailing duty on softwood lumber imports from Canada… and to rub salt into the wound, he made it retroactive for 90 days.

USDCAD rallied on the news and has since added to those gains.

Hewers of wood and drawers of water, beware. Photo: Shutterstock

On April 26, there was a rumour (trial balloon, maybe?) that Trump was going to pull the USA out of Nafta. USDCAD soared, rising from 1.3540 to 1.3648 in Asia.

That night, the rumour was kiboshed as Trump announced, “I received calls from the president of Mexico and the PM of Canada asking to renegotiate Nafta rather than terminate. I agreed… subject to the fact that if we do not reach a fair deal for all, we will then terminate Nafta,”

USDCAD unwound its earlier gains. However, the fact that the US leaving Nafta is a real possibility led to renewed strength.

In Donald Trump’s 1987 book The Art of the Deal, he outlines 11 steps for business success:

1. Think big

2. Protect the downside and the upside will take care of itself

3. Maximize your options

4. Know your market

5. Use your leverage

6. Enhance your location

7. Get the word out

8. Fight back

9. Deliver the goods

10. Contain the costs

11. Have fun

It would appear that steps three through seven have been employed in the trade talks with Canada and the loonie is collateral damage. The Fibonacci retracement of 2016’s 1.2458-1.4689 range targets 1.3837 (61.8% level and then 1.4162 (76.4% level).

USDCAD daily with Fibonacci retracement

Source: Saxo Bank

The week ahead

The new month kicks off with a distinct lack of players on day one. A host of countries are closed on Monday including China, Germany, and the UK which will put a damper on trading activity. Japan books off for three days beginning Wednesday.

On Monday, AUDUSD traders will focus on inflation data while the US ISM Manufacturing PMI data will be the highlight of the New York session.

Tuesday, the Bank of Japan policy meeting minutes are released and the governor delivers a speech. The Reserve Bank of Australia interest rate decision is also due. Rates are expected to be unchanged and the statement “cautious” before Europe unloads a ton of Manufacturing PMI data. The US data calendar is bare.

Wednesday, Japan is closed. NZDUSD traders will react to the GlobalDairyTrade auction released earlier in New York as well as the employment report. In Europe, Eurozone GDP and producer Price data is on tap. It is Federal Open market Committee day but as FOMC meetings go, this is expected to be a snooze-fest. It is a statement-only meeting

Thursday, Japan is closed again. AUDUSD traders will be busy dealing with trade data and a RBA governor speech. Markit Services PMI data is released in the UK and Europe. Trade data is on deck in Canada and the US.

Friday, Japan is still closed. Eurozone Retail Sales data gets released but the focus will be on the US employment report. If weather was truly a factor behind the week March data, this report may deliver payback.

The week that was

There were plenty of reasons to expect an entertaining week and for the most part, it was.

Monday, EURUSD gapped higher in Asia after Emmanuel Macron’s French election win. The gap has yet to be filled. It was the same story for USDJPY.

Risky assets love this man. Photo: Shutterstock

The election fallout continued in Europe and New York and dominated trading. German Ifo data didn’t cause a ripple and there weren’t any US data of note. Traders were also concerned about President Trump’s promised “big tax reform” news due Wednesday.

Tuesday, the Asia session was a tad quieter than normal due to Anzac holidays in Australia and New Zealand. EURUSD climbed to 1.0898 in Europe and peaked at 1.0950 in New York thanks to Reuters reporting “sources” at the ECB said a tapering signal may be seen in June.

The Canadian dollar was crushed when the US announced 20% countervailing duties on softwood lumber imports, retroactive for 90 days. The loonie recouped its losses by the end of the New York session on an oil price rebound.

Positive US economic data releases did not have much impact as traders were waiting for Trump-s tax plan. The US dollar ended the session with losses against the majors except for Kiwi and yen.

On Wednesday, Asia, and European traders were buying USDJPY and selling EURUSD ahead of the US tax announcement – even sterling got into the act. AUDUSD popped to 0.7550 as Q1 CPI was released but quickly faded the move. The US opened with small gains across the board. The highly touted, “biggest in American history”, tax cuts underwhelmed. Most of the headlines were leaked earlier and the administration was vague on details.

European currencies and yen all finished the day higher. The commodity currencies got whacked, led by the Canadian dollar, due to a report that President Trump would take the US out of Nafta. He didn’t.

Thursday, the Bank of Japan monetary policy statement did not cause mush of a stir. USDJPY inched up from an opening level of 111.04 ahead of the BoJ announcement but couldn’t get any traction above 111.37. USDCAD reversed Wednesday’s gains after the US administration said that it would not leave Nafta. Oil prices continued to move lower on oversupply concerns. Sterling got a boost in Europe on an election poll showing the conservatives with a big lead.

The European session was quiet until mid-morning when the ECB policy statement was released. It was as expected. Mario Draghi’s press conference triggered EURUSD selling which didn’t last and EURUSD recouped most of its post-press conference lows by the end of the New York session.

US data releases were softer than expected but didn’t have much of an impact on trading. The dollar ended the New York session with small gains across the board except against sterling and yen which were almost unchanged.

On Friday, higher than expected Eurozone inflation data lifted EURUSD in European trading. The US GDP data was mildly softer than expected and did not have much of an impact.

– Edited by Michael McKenna

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Loonie looking for love and not finding it 21Apr17

Loonie looking for love and not finding it

Michael O’Neill

FX Trade Strategist /



· USDCAD rally sparked by soft Canadian inflation and drop in oil prices

· French election worries end on Sunday and begin anew on Monday

· Month-end portfolio rebalancing flows may give a volatile end to the week and month

· FX may be more volatile in coming week thanks to central banks an top-tier data

Often called the "loonie", the Canadian dollar gets its nickname

from the common loon. Image: Shutterstock

By Michael O’Neill

The week is ending the way it started, quietly. French election jitters and other geopolitical worries have combined to keep FX traders sidelined.

Loonie not getting any love

USDCAD kicked off a steep rally on April 13 (Maundy Thursday to some), and it hasn’t looked back since. A confluence of events has erased the memory of the positive sentiment arising from the Bank of Canada’s perceived shift to a neutral policy stance.

To begin with, the market may believe that the BoC is neutral, but governor Stephen Poloz doesn’t appear to support that view. The BoC may have upgraded economic forecasts, but the tone of the statement was still very cautious, according to some economists.

The drop in oil prices played a large role in the USDCAD rally. WTI dropped to $50.07/barrel on April 20 from $53.70/b on April 12. Oil traders seem to have put more weight on near-term oversupply issues than on forecasts for increased demand in the second half of 2017.

Announcements from at least three major foreign investors of deals to sell Canadian oil sands assets provided additional (if unwarranted) support to USDCAD. Three of the deals were worth a total of CAD$27 billion.

The recent price action supports the view that those transactions could lead to Canadian dollar selling. USDCAD stayed bid all week, even during bouts of broad USD weakness.

Weaker-than-expected Canadian inflation data, released April 21, supports Poloz’s cautious monetary policy stance.

Canada CPI 12-month change CPI vs. CPI ex-food and energy

Source: Statistics Canada

Nevertheless, speculative traders are reportedly short Canadian dollars, and USDCAD is approaching significant resistance levels in the 1.3535-1.3600 area. The 1.2960-1.3600 range has held moves since January. It may be getting close to the time to fade this move.

USDCAD daily nearing significant resistance

Source: Saxo Bank

The week ahead

There are many reasons to suggest that the upcoming week will be entertaining. It will begin with the fall-out from the French presidential election on April 23 and then a fresh round of fretting about the second-round ballot on May 7. There’s no shortage of top-tier economic data slated, and two central bank meetings will also keep traders interested.

On Monday, the French election results will dominate FX discussions, while UK house price and German Ifo survey data will keep traders on their toes. There is no US data scheduled.

French voters cast first-round ballots on Sunday in a presidential election that’s too close to call. Image: Shutterstock

On Tuesday, Australia, and New Zealand are closed for Anzac Day, Italy shuts down for Liberation Day, and Portugal celebrates Freedom Day. There are no major Japanese or European data scheduled, but the US unloads a slew of housing data.

Wednesday, AUDUSD will be in focus thanks to a speech by the Reserve Bank of Australia governor and inflation data. Europe and the US are light on economic releases, while Canada retail sales are on tap.

On Thursday, the Bank of Japan interest rate decision, policy statement, outlook and press conference will dominate Asian FX trading. The European Central Bank policy decision and press conference will be the main event in Europe. The press conference will be closely watched to see if ECB president Mario Draghi has changed his tune from the previous press conference. US durable goods, trade, and more housing data will round out the day.

Friday will be a busy day all over. In the Asia-Pacific region, New Zealand trade and building permits kick it off, followed by Japanese inflation, retail trade, and employment data. Several regional European economic releases as well as Eurozone inflation data are also slated. Sterling will be centre stage with the release of first-quarter GDP. GDP reports are also due from Canada and the US. And if that’s not enough, there will be the usual month-end portfolio rebalancing flows.

The week that was

This week was short due to the long Easter weekend, and a dearth of data suggested that trading activity would be lacking. But it wasn’t.

Monday was quiet. That was to be expected because many countries had an Easter Monday holiday. China posted better-than-expected GDP, which gave the antipodeans a lift. USDJPY dropped as North Korea’s threats fueled safe-haven demand. The European session was a non-event due to holidays. New York was open for business, but its session was a non-event as well, although USDJPY rebounded from its Asia lows as US treasury yields inched higher.

On Tuesday, traders were unhappy with the tone of the RBA minutes, and AUDUSD began a slide that lasted until very early Thursday morning. USDJPY added to gains made in New York, but the rally died at 109.20, and the currency pair declined steadily until 108.44 at the New York close.

EURUSD gained on increased optimism that centrist presidential candidate Emmanuel Macron would win the upcoming French election. Sterling was the headliner in Europe and New York. The British prime minister surprised everyone by calling for an early election on June 8. Sterling soared, rising to 1.2905 from 1.2520, and it has hung on to most of those gains.

On Wednesday, NZDUSD added to gains made in New York after a 3.1% rise in the global dairy trade auction. Kiwi peaked at 0.7051 and declined to 0.6990 by the New York close. AUDUSD dropped to 0.7490 from 0.7526 on falling iron ore prices in the same period. USDJPY opened with a bid at 108.44 and rallied to 109.15 by mid-morning in New York, supported by profit-taking and higher equity prices. EURUSD traded sideways in a 1.0700-40 range, sidelined by French election worries. Sterling drifted down to 1.2770 from 1.2855, undermined by broad USD strength.

On Thursday, better-than-expected New Zealand inflation data (CPI actual +2.2% vs forecast 2.0%, y/y) powered NZDUSD from 0.6998 to a peak of 0.7050 by the time Europe opened. That move was completely reversed by the New York open and Kiwi traded sideways for the rest of the day. The Australian dollar pulled itself off lows, supported by broad dollar weakness and a forecast-beating NAB business confidence report (actual 6 vs. forecast 5). AUDUSD climbed from to 0.7545 from 0.7494 in New York.

USDJPY bopped and weaved inside a 108.70-109.06 range. Japan’s trade data was better than expected. EURUSD was bid in Europe on French election positioning, but that move was pared back in New York. GBPUSD was steady on expectations that prime minister Theresa May would get a strong majority.

The US dollar ended in New York with small gains after starting the day with small losses across the board. US economic data releases did not attract much attention. The only major developments were another terrorist attack in Paris on Thursday evening, in which one policeman was killed and two wounded, and comments from US treasury secretary Steven Mnuchin that tax reform plans would be coming “soon”.

On Friday, FX traders consolidated moves and were content to await the French election results.

US treasury secretary Steven Mnuchin this week reassured markets that the Trump administration would accomplish tax reform by year-end. Photo: Wikimedia Commons

— Edited by John Acher

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Trump Tomahawk tactic fails to hold market’s attention 17Apr17

Trump Tomahawk tactic fails to hold market’s attention

Michael O’Neill

FX Trade Strategist /


· US ends string of strong nonfarm payrolls reports

· Trump flexes military muscle in Syria

· Short week and light US economic calendar ahead

With the attack on Syria, Trump has moved his presidency towards the mainstream of Republican foreign policy. Photo: Shutterstock

By Michael O’Neill

If president Donald Trump updates his 1987 book "The Art of the Deal", he should include a chapter called "Tomahawk Tact: a Republican president’s guide to building popularity at home" .

After all, it worked for Reagan, Clinton, Bush, and… Bush again (Obama just drew lines in the sand). Americans enjoy beating the war drum and waving the flag when the right opportunity arises, and "right" usually means "distant, weak, and unfortunately aligned".

Last night, Syria fit the bill.

The US missile strike on Syria’s Al-Shayrat Airfield may have signalled a shift in diplomatic discussions surrounding many of the world’s hotspots.

On Thursday, Philippines president Rodrigo Duterte put troops on unoccupied but disputed islands in the South China Sea. That was the same day that Reuters reported a Chinese fighter plane parked on another contested rock in the same contested sea. China is flexing its muscles around Malaysia as well, with Chinese coast guard ships floating around reefs claimed by Kuala Lumpur.

Trump has made noises about “going it alone” to rein in North Korea and its constant missile testing threats. North Korea is supposed to be China’s responsibility, of course, which could put the US at odds with the Middle Kingdom.

The US attack on the Syrian air base has also angered Syria’s ally, Russia. America is already annoyed at Russia for its rumoured interference in the US election, its invasion of Crimea, and its support of rebels in Ukraine.

Back in the day, a US missile attack on any nation would have led to a prolonged period of risk aversion. Nowadays, it can’t hold anyone’s attention for more than a couple of hours.

Are markets being overly complacent or overly ignorant to the risks?

Time will tell.

The US has never had much success in terms of its Middle Eastern adventures, but Syria’s Russian alliance makes this one the most sensitive yet. Photo: Shutterstock

The week ahead

It will be a short week for many regions due to the Easter holidays beginning on Friday (with the US being the notable exception). There are not any top-tier US data scheduled but there is no shortage of important economic releases from the other G10 nations.

Monday will be slow with only fallout from the previous Friday’s US employment report available to guide trading. And of course, any noteworthy developments from the Trump/Jinping summit.

Tuesday, the European session may have the most excitement due to UK CPI and PPI releases and Eurozone ZEW surveys.

Wednesday could be a busy day depending upon the reaction to China PPI and CPI reports, as well as UK unemployment data. The Bank of Canada monetary policy statement, press conference and monetary policy report will be the focus for USDCAD traders.

Thursday mornings will be busy around the globe while early departures for Easter holidays will ensure quiet afternoons. The Australia employment report will kick off a busy Asia session and it will be followed by Chinese trade data. There are a lot of US data on the slate as well, but all of them are second tier.

The week that was

The first week of the second quarter was noisy, complete with sabre-rattling, a Federal Open Market Committee member falling on his pension, nonfarm payrolls data, and FOMC minutes. Nevertheless, although the US dollar did not break out of its comfort zone, it managed to make gains against all the G10 currencies except for yen.

Monday had a lot of everything. Japan’s Tankan survey was mixed to soft but not enough to bother FX traders. USDJPY drifted up from 111.14 to 111.57 when Europe opened and then erased all those gains by mid-morning in New York. AUDUSD rallied at the open and found this week’s peak of 0.7614 early. Weaker-than-expected Retail Sales kicked off a slide that continued for the rest of the week. NZDUSD followed Aussie lower.


Create your own charts with SaxoTraderGO click hereto learn more

Source: Saxo Bank

The Eurozone saw a slew of Markit Manufacturing PMI reports, most of which were as expected or better. None of them had a meaningful impact on EURUSD which bounced inside a 1.0640-80 range the entire day. However, the weaker-than-expected UK PMI report did bother sterling traders. GBPUSD dropped from 1.2555 and hit 1.2462 by the end of the New York session. New York action was subdued. Traders were distracted by the terrorist attack in Russia, and another political failure for the Trump administration.

Tuesday, there was modest shift into risk aversion trades due to the attack in Russia, Trump’s comments toward North Korea, and the China/US summit at the end of the week.

AUDUSD failed to capitalise on a positive trade report after the central bank delivered a somewhat dovish policy statement. EURUSD stayed rangebound while sterling had another inexplicable move in Asia. In the US, strong US economic reports and a rise in oil prices chased away risk aversion sentiment. Richmond Fed President Lacker resigned from the FOMC for blabbing FOMC secrets and lying about it for five years.

Wednesday, the Asia session was very quiet although another missile test in North Korea led to safe haven demand for yen. Eurozone Services PMI data was expected and wasn’t a trading factor. Sterling traded with an offered tone with Brexit concerns outweighing economic data.

In New York, the ADP Employment report surprised to the upside, posting a gain of 263,000 jobs versus a forecasted 187,000 and this gave the US dollar a bid. The release of the FOMC minutes created a flurry of activity due to the discussion on balance sheet reduction. The US dollar ended the day on a mixed note and not very far from its opening levels.

Thursday, FX markets were rather whippy in Asia and Europe. Weaker-than-expected China Services PMI data undermined AUDUSD. USDJPY was sold on Fed balance sheet reduction concerns. In Europe, the European Central Bank unleashed the big guns to ensure that markets understood that they had not changed their policy. EURUSD declined but was unable to break below 1.0630, the bottom of the range this week.

A better-than-expected US jobless claims report gave the greenback support during the New York session, but not enough support for the dollar to break out of this week’s ranges. Oil prices rallied despite earlier reports of a rise in US crude inventories and talk that Iran would increase production by 600,000 barrels per day by the end of the year. President Trump and president Xi‘s meeting and Friday employment report limited price action.

Friday was explosive. A wave of risk aversion washed over markets in early Asia trading when it was announced that the US launched missiles at Syria in retaliation for the country’s alleged use of chemical weapons. Risk aversion did not last when it became apparent that it was a “one-off” response and not the start of a war. The focus quickly shifted to nonfarm payrolls where disappointing data led to a US dollar retreat.

Friday’s nonfarm payrolls number showed fewer Americans preparing to start new jobs

than the midweek ADP figure portended. Photo: Shutterstock

— Edited by Michael McKenna

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