Portugal invaded by kettle of hawks-30Jun17


Portugal Invaded by Kettle of Hawks

· June 2017 may go down in history as the month central bank doves became hawks

· Canadian GDP meets expectations, supporting BoC’s rosy forecast

· USDCAD decline may be overdone and ripe for a correction

· Quiet week ahead until US nonfarm payrolls on Friday

The hawks were out in numbers this week. Photo: Shutterstock

By Michael O’Neill

USDCAD has dropped by more than 0.0500 points since the Bank of Canada’s U-turn on interest rate policy. It is a rather aggressive move in anticipation of a mere 0.25 basis points increase. The BoC didn’t say anything about the next rate hike being the first in a series. All it said was that it was time to “take the foot off the gas”.

Nevertheless, more than few bank economists have penciled in three rate increases by mid-2018. That is a huge swing considering that just two weeks ago most forecasters had the first Bank of Canada hike sometime in the first quarter of 2018.

Meanwhile, the problem of oil production exceeding demand has not gone away. Oil prices have risen in the past few days, but many believe the uptick came mostly from position adjustments ahead of month-end/quarter-end.

WTI crude oil climbed on Wednesday when the US Energy Information Administration reported a 100,000 barrel/day drop in US production in the previous week. Inventories increased slightly. Traders focused on the production decline while ignoring claims by some analysts that the drop was due to production disruptions caused by tropical storm Cindy.

Reuters reported that Libya is on course to reach 1 million barrel/d production “very soon” and is already producing between 935,000 and 950,000 b/d.

USDCAD has solid support in the 1.2950-65 area, which is the 61.8% Fibonacci retracement of the May 2016-June 2017 range. That level has survived many tests since September 2016.

The drop to 1.2960 from 1.3520 on the possibility of a 0.25 bps rate hike is excessive in a soft oil price environment. The week ahead will be quiet until Friday, suggesting that the time is ripe for a USDCAD corrective rally toward 1.3150.

USDCAD daily

Source: Saxo Bank

A kettle of hawks blow off steam

June 2017 may go down in history as the month central bank doves turned into hawks. It started with European Central Bank president Mario Draghi, a dove’s dove. On June 8, he came out of the closet as a hawk, or more accurately, an eyas*. He started whistling a positive tune about the outlook for the Eurozone economy and markets heard “rate increase.”

(* eyas: an unfledged bird; specifically a nestling hawk, Merriam-Webster Dictionary).

Then it was Fed chief Janet Yellen’s turn. She hiked rates. It is rather difficult to still be a dove when you are cranking up interest rates. Not only that, the door is still open for a third US hike in 2017.

On June 19, the Bank of Canada announced the end of monetary stimulus, saying it was time to “take the foot off the gas”. Governor Stephen Poloz, who in January said “rate cuts were on the table”, proclaimed on June 20 that “rate cuts have done their work”. His Dr. Jekyll and Mr. Hyde transformation was complete.

Bank of England Governor Mark “Flip-flop” Carney may have felt like he missed the bus. Once described by the chancellor as the “outstanding banker of his generation”, he may have felt that crown being usurped by the ECB’s Draghi. Not being British, he couldn’t keep a stiff upper lip, so he did the next best thing: he changed sides. On June 20, he said “now is not the time to raise rates.” Eight days later he told an audience in Sintra, Portugal that higher rates will be necessary.

The era of easy money is over. Or is it? Are regional economies booming to such an extent that they won’t be disrupted by higher borrowing costs? Has the risk of deflation been beaten into submission?

Global equity markets are at record — or near record — levels and have been steadily rising since 2008. Nothing lasts forever. Perhaps the central bankers’ desire to raise rates, and quickly, is to allow them room to cut when the stinky stuff comes into contact with the whirling blades.

Pena National Palace, Sintra, Portugal. Photo: Shutterstock

The week ahead

It will be a short week in the US and Canada, but the short week will finish with a bang thanks to Friday’s US employment report.

Monday is Manufacturing PMI day. The data could have an outsized impact in the UK and Eurozone thanks to fresh hawkish interest-rate developments and give US rate hike chatter a boost. Canada is closed.

On Tuesday, the American 4th of July holiday will put a damper on global FX trading. AUDUSD traders will be focused on the Reserve Bank of Australia’s interest-rate decision and policy statement. No change in rates is expected, but will the RBA follow the lead of other central banks and give a hawkish spin? GBPUSD traders will contend with Inflation Report hearings.

Wednesday, NZDUSD will react to the global dairy trade auction results, while traders elsewhere and in Europe react to Markit services PMI data. Americans will return to the fray and await the release of the Federal Open Market Committee meeting minutes.

Thursday, AUDUSD is back at centre-stage with the trade report. The rest of the day will be quiet, with traders across the globe waiting for Friday’s US nonfarm payrolls.

On Friday, the US employment report is expected to show a gain of 185,000 nonfarm jobs in June. The Canadian forecast is for a gain of 5,000.

The week that was

Expectations for quiet FX markets until the end of the week proved mistaken, thanks to a blast of hot air from central bankers.

On Monday, a sleepy Asia session gave way to a muddled and messy European session, particularly for EURUSD and gold traders. EURUSD rallied on better-than-expected German IFO data and then sank on news of a right-wing victory in Italian mayoral elections. That was the messy. The muddle came from a “flash-crash" in gold prices.

Apparently a “muppet” got confused between ounces and lots, resulting in lots of gold lots being sold. XAUUSD dropped to 1236.45 from 1253.88 in minutes. Durable goods data was the highlight of the New York session and, as far as highlights go, it wasn’t. It was weaker than expected, but after the usual drama around the data, the rest of the session was anticlimactic. The US dollar ended the day virtually unchanged.

On Tuesday, the antipodeans had a strong start in Asia, but couldn’t keep up the pace in Europe. AUDUSD finished in New York where it started in Asia, while NZDUSD was lower. EUR and GBP demand undermined the pair. USDJPY was choppy, but with a bid tone supported by expectations of hawkish remarks from Yellen during the New York session.

EURUSD roared to life in Europe, rising to 1.1263 from 1.1182 in seconds, after the ECB’s Draghi appeared to change sides. The renowned dove, champion of massive monetary stimulus and deflation foe is now a hawk. Or at least, he is dressing that way. The EURUSD rally accelerated in New York, sinking USDJPY in the process. Oil prices climbed due to month-end position adjustment, supported by USD weakness, which gave USDCAD a lift.

Wednesday, Asia traders keyed in on the delay in the US healthcare bill vote and Draghi’s non-dovish remarks. USDJPY was whippy inside a 111.84-112.40 range and, despite all the chop, opened in New York unchanged from the close.

EURUSD traded sideways in Asia and drifted higher in Europe. It got more exciting when New York opened. A Bloomberg headline suggesting that Draghi’s remarks on Tuesday, were misinterpreted, which sent EURUSD plunging by 0.0085 points to 1.1295. The move was reversed by the end of the day.

USDCAD plunged after a CNBC interview with Bank of Canada governor Poloz, falling to 1.3015 from 1.3140.

The Bank of England’s Mark Carney executed a “patented” flip-flop on interest rates. On June 20, he said it was “too soon to raise rates”. In Portugal, he said “some removal of stimulus may be necessary". GBPUSD rallied to 1.2970 from 1.2820.

Oil traders jumped on the rally bandwagon after the weekly EIA report showed that US crude production dropped by 100,000 barrels per day.

On Thursday, the US dollar drifted lower in orderly Asia and European markets. AUDUSD popped to a three-month peak on rising iron ore prices, A surprise rise in German inflation gave EURUSD a lift, and that trend continued until the New York close. Wall Street finished in the red after a tech stock selloff.

On Friday, FX markets were finishing the week with a whimper. The US PCE inflation data was close enough to forecasts to be ignored, leaving FX ranges intact.

— Edited by John Acher

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USDX and lack of data point to slow week ahead 23Jun17


USDX and lack of data point to slow week ahead

Michael O’Neill

FX Trade Strategist / http://www.Loonieviews.net

Canada

· Soft Canada inflation report offsets robust Retail sales data

· A busy Friday will crown a boring weak due to a dearth of top tier data

· Oil prices at current levels have limited impact on Loonie

Bank of Canada Deputy Governor Carolyn Wilkins said that Canada has “moved past the adjustment to lower oil prices” in her June 12 speech. She appears to be right on.

West Texas Intermediate (WTI) has dropped 8.7 percent since her speech while the Canadian dollar rallied.

That doesn’t bode well for USDCAD bulls. If WTI support in the $41.20-$41.80 area holds, the Canadian dollar will be unshackled from the drag of soft oil prices. That will leave the Bank of Canada interest rate outlook exerting added downward pressure on USDCAD, if the economic data continues to improve.

The June 23 inflation report was a tad weaker than expected which erased part of the gains from the robust retail sales report a day earlier. Part of the inflation weakness is due to low oil prices which the Bank of Canada is well aware of.

Nevertheless, BoC Governor Poloz as a penchant for verbal intervention whenever the Canadian dollar shows signs of strength which could limit USDCAD losses.

USDCAD and WTI oil from June 12

Source: Saxo Bank

US dollar index

The low volatility and the lack of direction in the FX majors is clearly reflected in the US dollar index. The USDX topped out in January 2017 and has been in a choppy, downtrend channel ever since. The break below the 50% Fibonacci retracement level (97.82) on May 8 and the failure to extend losses below the 61.8% level, despite many attempts, ushered in a six-week (so far) period of consolidation.

Neither a slightly doveish ECB meeting or a slightly hawkish FOMC meeting could provide sufficient fuel to end the consolidation.

Unless the ECB deviates from the course of action outlined a few weeks ago, the July 9 meeting may be anti-climactic. The FOMC policy meeting isn’t until July 25. There isn’t a press conference which lowers the odds for a policy change announcement.

If those two events are benign, FX action in July and August won’t look much different than that of the past six weeks.

USDX daily

Source: Saxo Bank

The week ahead

If the week that just ended put traders to sleep, the coming week rouse them from their slumber, like a three am fire alarm but probably not until Thursday.

Monday, Asia is likely to get off to a slow start except for Kiwi traders. A better than expected New Zealand trade report may give NZDUSD a lift. Europe trading may be subdued unless German IFO data can drum up some excitement. US Durable Goods is the highlight in North America, which may not be a highlight at all.

Tuesday will be like Monday. There isn’t any data from Asia and the European data is all bottom of the barrel stuff. The UK inflation report hearings may offer some fodder for GBPUSD traders. The US data shouldn’t be much of a trading factor either

Wednesday will shape up like Tuesday. Traders will struggle to find direction from bottom tier data reports. The New York session will see a variety of data which if consistently strong, should give the greenback a boost.

Thursday, FX activity should increase. Japan Retail Trade data, Australia New Home Sales and New Zealand Business confidences will keep Asia busy. Eurozone traders will be focused on confidence and German Inflation data. Sterling traders will be focused on Mortgage Approval data.

US Q1 GDP, expected at 1.2%, will only be important if it misses the forecast.

Japan ushers in a busy Friday with a host of economic reports including Industrial production and employment. That is followed by China manufacturing PMI. There is a slew of Eurozone economic data as well. Sterling traders will key in on UK GDP and Current account reports.

New York will be very busy. CPI and Michigan consumer Sentiment will be up against month end, quarter end and half year end re-balancing flows which may make for a very sloppy session. Canada GDP will be key for USDCAD traders.

The week that was

Expectations were rather low for FX excitement this week. Those expectations were met.

Monday, GBPUSD dropped at the Asia open in part, because of the onset of the EU/UK Brexit negotiations. USDJPY opened with a bid. Weaker than expected Japanese Merchandise trade data provided some support. The European session was almost a complete write-off with traders sidelined ahead of New York Fed President Dudley’s speech.

Mr. Dudley, a well-known dove, talked like a hawk. He supported additional rate increases and gave an upbeat outlook for the US economy. EURUSD dropped from 1.1208 to finish the day at 1.1144.

New York Fed President William Dudley, a well-known dove,

talked like a hawk. Photo: Shutterstock

Tuesday, USDJPY peaked at 111.78 in Asia, then drifted lower in a choppy fashion, closing in New York at 111.42. AUDUSD was supported by the release of the RBA minutes which didn’t offer much to undermine the currency. EURUSD traded sideways until mid-morning in New York when it dropped from 1.1164 to 1.1118.

Sterling was the star of the show thanks to Mark Carney’ saying that it was “too soon” to raise interest rates. GBPUSD plunged from 1.2755 to 1.2605 and finished yin New York at 1.2610.

Oil took a nasty spill. WTI dropped from $44.38/b in Europe to $42.68 at mid-morning in New York. Prices recovered somewhat and WTI closed at $43.50

Wednesday, declining oil prices provided the excitement in an otherwise moribund FX market. A weak GlobalDairyTrade auction pressured NZDUSD in Asia but the losses were reversed in European trading.

USDJPY experienced a bout of risk aversion selling, in part due to the oil price drop but it found a bottom just as New York opened.

The New York open was livelier than usual thanks to hawkish comments from Bank of England Chief Economist Andy Haldane. His support of a rate hike, boosted GBPUSD to 1.2705 from 1.2592.

EURUSD dropped from 1.1162 to 1.1118 in the same period. A jump in existing home sales offered a tiny bit of support to the greenback. Oil prices soared and sank around the EIA weekly crude stocks data. WTI rose from $43.60/b to $44.10 and then it dropped to $42.05. Profit taking took it back to $42.52 by days’ end.

NZD rallied against the USD end of the week. Photo: Shutterstock

Thursday was much like Wednesday, except for Kiwi traders. The Reserve Bank of New Zealand left interest rates unchanged, and policy “accommodative.” NZDUSD rallied, gapping up from 0.7215 to 0.7270. It still had most of the gains when New York closed.

USDJPY came under renewed selling pressure dropping from 111.45 to 110.95 on a fresh bout of mild risk aversions stemming from low oil prices. Those losses were fully recovered during the New York day.

EURUSD topped out at 1.1175 in Asia, chopped around in a tight range in Europe and drifted lower in New York, closing at 1.1151. The Canadian dollar soared on a stronger than expected Retail Sales report. USDCAD dropped from 1.3315 to 1.3210. Oil prices finished off their best levels and WTI stayed in an intraday downtrend.

Friday, FX markets were quiet in Asia and Europe. Euro area and EU PMI data was mixed but had little impact on trading. The US dollar opened in New York slightly softer compare to Thursday’s close. However, for the week, the greenback posted gains against everything except for the Swiss franc and the New Zealand dollar.

— Edited by Clemens Bomsdorf

Michael O’Neill an FX consultant at IFXA Ltd.

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The Great white Short Squeeze 16Jun17


The great white short squeeze

Michael O’Neill

FX Trade Strategist / http://www.Loonieviews.net

Canada

·

· Bank of Canada changes its tune, turns hawkish

· FOMC leaves door wide open for another rate increase

· Lack of tier-one US data next week lifts importance of regional reports

Investors are flocking back to CAD. Photo: Shutterstock

By Michael O’Neill

A month ago, a Reuters article resurrected the term “Great White Short” to describe the bearish outlook for the Canadian dollar.

On May 11, CAD was the worst-performing G10 currency in 2017. The combination of falling oil prices, monetary policy divergence between Canada and the US, increased trade friction led by president Trump, and housing bubble concerns had some forecasters predicting

USDCAD would touch 1.4084.

As a result, long USD/short CAD speculative positions were at very elevated levels.

To use Mark Twain’s formulation, however, reports of the loonie’s death were greatly exaggerated.

First, a series of reports showed that the economy is rebounding. That culminated in an ever-so-modest upbeat tone to the Bank of Canada policy statement on May 24. BoC governor Stephen Poloz appeared to acknowledge the positive aspects of the domestic economy rather than emphasising the downside. The statement was followed by a 0.5% rise in March GDP and another stellar employment report.

Still, it wasn’t enough to take USDCAD out of its comfortable 1.3400-1.3600 range, something that was largely due to the sharp decline in oil prices; WTI had dropped from $51.90 to $45.20/barrel between May 11 and June 9.

Then came senior deputy governor Carolyn Wilkins’ speech on Monday. In it, she trumpeted broad economic growth from 70% of domestic industries, rising employment, and an end to the economic adjustment from the oil price plunge.

Source: Bank of Canada

She also said that “to ensure that inflation gets back to target on a sustainable basis, we must consider not only current economic conditions but also how they will evolve. If you saw a stop light ahead, you would begin letting up on the gas to slow down smoothly. You do not want to have to slam on the brakes at the last second. Monetary policy must also anticipate the road ahead."

Then and there, the "Great White Short Squeeze" began.

FX traders concluded that the Bank of Canada was in rate hike mode. JPMorgan economists pulled their Canadian rate hike forecast forward from Q2 2018 to October 2017.

USDCAD plunged, falling from 1.3465 to 1.3165 and instead of 1.4084, traders are looking at a potential drop to 1.2771 and even as far down as 1.2450, the May 2016 low .

Sceptics point to low oil prices as a major reason why USDCAD losses will be limited, noting that WTI short-term technicals are bearish and looking for further weakness to $42.40/b. They may have a point, but it should be noted that USDCAD traded within a 1.2490-1.3290 range when

WTI traded between $30-$40/b in Q1’16.

The BoC believes that the country has weathered the storm from the oil price shock. which implies that WTI at $$40-$45/ barrel is less important that the prospect of a rate hike.

The short-term USDCAD technicals support that view and are targeting a drop to 1.2770 on a break of support in the 1.3160-80 area.

USDCAD (daily):

Source: Saxo Bank

The week ahead

It’s Brexit time. Britain begins negotiations with the EU to exit from the European Union. The UK government is a bit of a mess and even though the negotiations will last nearly two years, inflammatory rhetoric could make GBPUSD volatile. Elsewhere, a lack of actionable economic data argues for a very quiet trading week.

Monday, Japan will get things going with the release of the trade balance. After that, the global data cupboard is bare which should make for a quiet day.

Tuesday, AUDUSD traders will be entertained with the Reserve Bank of Australia minutes and house price data. The European and US sessions do not have much to get excited about, either.

Wednesday looks like another dull session right across the globe.

Thursday, New Zealand will liven things up a bit with the Reserve Bank of New Zealand’s interest rate decision and policy statement. There isn’t much else until Canada releases retail sales

Friday, those traders still awake must deal with a slew of preliminary Markit PMI reports, which are second-tier and not likely to cause a stir.

The week that was

The week was expected to be quiet until Wednesday’s Federal Open Market Committee policy meeting and statement… and it was.

Monday got off to a slow start in Asia; Australia was closed for a holiday. FX ranges were very tight and that continued throughout the European session as well. EURUSD ticked higher on French election results giving Emmanuel Macron’s party a solid majority. UK election results and Brexit concerns took GBPUSD from 1.2768 in Europe to 1.2642 by mid-morning in New York. The US session was deathly dull due in part due to a lack of top-tier economic data. USDCAD plunged when the BoC’s Wilkins announced her somewhat hawkish shift.

Tuesday was as quiet as Monday for the antipodean currencies. USDJPY flatlined in a 109.80-110.26 range. Sterling started to rally in Asia and had recouped almost all its previous day’s losses by lunch time in New York thanks to better-than-expected CPI data. EURUSD stayed inside a 1.1185-1.1220 range. USDCAD declined further after BoC governor Poloz said rate cuts “have largely done their work”.

Oil prices rose on Saudi production cut plans but erased those gains at the end of the day on an increase in US crude inventories.

Wednesday, Aussie and kiwi rallied following better-than-expected China retail sales data but those gains were erased after the FOMC statement. EURUSD was steady within Tuesday’s range while sterling was choppy. GBPUSD rose from 1.2742 to 1.2792 in Europe on a solid UK employment report but retraced the move as New York opened.

Stateside, a mess of weak US data including weaker than expected CPI and retail sales lead to broad US dollar selling. EURUSD rose from 1.1198 to 1.1294. GBPUSD soared to 1.2816 from 1.2740. USDJPY plunged from 110.30 to 108.95. The antipodeans spiked back to their overnight peaks.

The greenback looked like it was on its last legs. Then the FOMC came to the rescue. The Committee raised US interest rates by 0.25%, for the second time in 2017, and tweaked inflation and growth forecasts. That was expected. However, the tweaks were minimal, another rate hike was still on the table, and balance sheet reduction would begin sometime in 2017. It wasn’t the dovish hike expected and the US dollar rallied.

USD index (hourly):

Create your own charts with SaxoTraderGO click here to learn more

Source: Saxo Bank

Thursday, AUDUSD had a short-lived rally on a better-than-expected employment report. After touching 0.7629. AUDUSD slid steadily and closed in New York at 0.7581. A weak GDP report sent NZDUSD tumbling from 0.7266 to 0.7184 by mid-morning in New York but it bounced back to 0.7210 by the close. GBPUSD traded lower in Europe, weighed down by UK politics and a weak May retail sales report.

EURUSD traded sideways in Asia but sank to 1.1153 in Europe. USDJPY opened in New York, unchanged from the previous close. A slew of robust US economic reports not only validated the FOMC rate hike Wednesday, but left a third hike on the table for 2017. The day ended with gains across the board for the US dollar, except for sterling. USDJPY closed near the day’s peak of 110.97 while sterling held on to its post-BoE move.

Friday, the Bank of Japan did what was expected, leaving interest rates and policy unchanged and USDJPY rallied. Elsewhere, the US dollar pared gains against the majors in what was likely a profit-taking move ahead of the weekend.

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Thursday was more ‘blooper’ than ‘super’


Thursday was more ‘blooper’ than ‘super’

Michael O’Neill

FX Trade Strategist / http://www.Loonieviews.net

Canada

· Better-than-expected Canadian employment data sends USDCAD tumbling

· Beware the hype ahead of June 14 FOMC meeting

· Watch for "Wild Wednesday" next week

The British prime minister ran on a platform of "strong and stable leadership",

but came out of the election severely weakened. Image: Shutterstock

By Michael O’Neill

The bar was set rather low for Friday’s Canadian employment report. Too bad. Canada added 55,000 jobs in May, well above the 11,000 gain forecast. The report is also making USDCAD bulls nervous. Their stretched long positions are well supported by economic fundamentals and soft oil prices, however stop losses are lurking below 1.3380.

Canadian unemployment rate

Source: Statistics Canada

The US dollar is finishing the week on a losing note (based on last Friday’s close) against the Japanese yen, the antipodean currencies and the Canadian dollar, while it posted gains against sterling, the euro and the Swiss franc.

Super or blooper

If “Super Thursday” was a movie, it would have been a box-office bomb.

Financial analysts and the media had created hype around the June 8 European Central Bank meeting. In a nutshell, it suggested that evidence of divisions within the ECB regarding a quantitative easing exit strategy, combined with recently improved economic data, would lead to a moderately hawkish shift in the bank’s statement.

They were right — sort of. The ECB dropped the easing bias, but any bullish sentiment from the move was quashed by ECB president Mario Draghi. EURUSD drifted lower in the aftermath of his press conference.

Elsewhere, the ex-FBI director James Comey’s testimony to the US Senate Intelligence Committee was elevated to “Watergate” importance. Many people feared his recollections and revelations would provide evidence to start impeachment proceedings against President Donald Trump. Instead, Comey came across as a self-serving “muppet” who leaked information to the press while basking in the glow of the national spotlight.

However, even box-office bombs have some redeeming qualities. The UK election put the “Super” in “Super Thursday”, though for prime minister Theresa May there was nothing super about it.

Thursday’s UK election was a fiasco for prime minister

May and her party. Photo: Shuttestock

The week that will be

Attention now swings to the June 13-14 Federal Open Market Committee meeting, and the fallout from that meeting will define FX markets in the coming week.

Monday will start quietly in Asia due to a holiday in Australia. New Zealand traders will deal with a retail sales report. There isn’t much data from Europe or the US. Post-election headlines will dominate sterling trading.

Tuesday, a lack of data will ensure a quiet Asia session. Europeans will key in on the Eurozone ZEW survey and UK inflation data (forecast unchanged in May). The US has PPI, but traders will likely be sidelined ahead of the Fed meeting.

Wednesday is the “big day” of the week. China retail sales and industrial production figures will be the focus in Asia. Europe will deal with German inflation, UK employment, Eurozone employment as well as industrial production reports. In the US, retail sales and CPI are due in the morning. After that, traders will be sidelined until the FOMC statement and press conference in the afternoon. A 0.25% rate hike is a given. The question is “What’s next?”

Thursday, New Zealand GDP (forecast 2.7%, y/y) and the FOMC results will initially dominate Asia trading, followed by Australia Inflation expectations, and employment. In Europe, the Swiss National Bank interest-rate decision and press conference will be the focus in early trading. Next up is UK retail sales and the Bank of England interest rate decision. It will be interesting to see how the BoE reacts to the new minority government in the UK.

Friday kicks off with the Bank of Japan monetary policy statement and press conference. EURUSD traders may be busy, depending upon the Eurozone CPI data. GBPUSD traders will focus on the Bank of England quarterly bulletin. US housing data will wrap up the week.

The week that was

It was a short week for many and a horrible week for UK prime minister Theresa May and her Conservative Party who lost their majority in parliament and now face a huge challenge to steer the country with a minority government.

Monday got off to a grim start on news of a terrorist attack in the UK. Early Asia GBPUSD weakness turned in to strength by the time New York opened. The pending UK election was the bigger focus, and the Conservatives’ lead in the poll was shrinking, which undermined GBPUSD. Middle East political drama entertained New York traders after diplomatic ties to Qatar were cut by Saudi Arabia and others. FX markets were quiet.

On Tuesday, the highlight of the Asia session was the Reserve Bank of Australia’s policy meeting. Rates were left unchanged and the outlook was mildly positive. AUDUSD popped from 0.7480 to 0.7519 by midday in New York. Kiwi was supported by higher-than-expected ANZ commodity prices. USDJPY collapsed just after the Tokyo “fix.” Stop-losses were triggered on the break of support at 110.28, and USDJPY dropped to 109.55. EURUSD was choppy in a 1.1230-1.1275 range as traders waited for Thursday’s ECB meeting. Sterling rallied and sank with election polls, but stayed in a 1.2870-1.2945 range. The New York session was quiet.

Wednesday was lively. Better-than-expected first-quarter Australia GDP data and the earlier positive RBA economic outlook powered AUDUSD from 0.7498 in Asia to 0.7565 by mid-morning in New York. USDJPY was initially sold, but recovered all its losses in Europe.

“Official sources” told Bloomberg that the ECB would trim inflation forecasts while raising its growth outlook. EURUSD tanked. Then someone else told Reuters that the “tweaks” would be minor, and EURUSD recouped the earlier losses. EURUSD ended the day in New York, only slightly worse for wear. Oil prices collapsed, sliding nearly 5% to $45.65/barrel, on a surprise increase in US crude inventories.

Former FBI chief James Comey’s written opening statement to the US Senate Intelligence Committee was released a day ahead of his appearance. The statement did not contain any fresh information, but it distracted US traders for the rest of the day.

Thursday was billed as “Super Thursday” by some. It wasn’t. The ECB removed the easing bias but Draghi was defiantly dovish. EURUSD dropped from a European peak of 1.1268 to 1.1195 and closed at 1.1295. Comey’s testimony was political theatre, a case of "he said, she said". At worst, it may be distracting enough to impede Trump’s tax reform agenda.

On Friday, news overnight of PM May’s stunning defeat in the UK election sent sterling tumbling. GBPUSD dropped from 1.2949 to 1.2737 in Asia and Europe. A surprisingly strong Canadian employment report knocked USDCAD lower.

It’s back to Fed watch in the coming week. Photo: Shutterstock

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Loonie Chokes on Climate change chill


Michael O’Neill

FX Trade Strategist / www.Loonieviews.net

Canada

·

· Nonfarm payrolls do not impress, US dollar dives

· Trump puts climate change policies under the microscope

· Next week will set the FX tone for the summer

The Trumpschach test, climate change edition: Inspiring step towards a world of multilateral cooperation, or a bunch of suits shaking the US down for money? Photo: Shutterstock

By Michael O’Neill

The US dollar got knocked for a loop when the expected-to-be strong nonfarm payrolls report was nowhere to be found. Instead, traders got a print that Saxo Bank’s John Hardy described as "ugly virtually across the board".

President Trump had the same effect on oil prices which dropped 4.3% since midday in New York on Thursday. Rising oil production in Libya and Nigeria, as well as the idea that US drillers can proceed unfettered by inconvenient carbon taxes on their product, raised fears of another oil glut.

A kind of a chill across the globe

President Trump pulled the US from the Paris Agreement as promised. Predictably, the majority of the press are choking on their words as they express their outrage.

In my opinion, it’s a bit of a farce. The Paris agreement merely sets a goal for reducing global warming to less than two degrees compared to pre-industrial levels. How each country determines their contribution is up to them. There aren’t even any deadlines to set specific targets – it’s hardly science, and hardly law. It’s a fluffy accord.

There is, however, very real anger in governments around the world. Most of it is because the US would have been the largest contributor to the Green Climate Fund. According to the GCF’s pledge tracker, as of May 12, 2017, the US had pledged $3.0 billion of the $10.132 billion in pledges. The loss of that money means a whole lot of bureaucrats high-paying, cushy jobs may be in jeopardy

Trump says that the Paris accord transfers are more less about the climate and more about other countries gaining a financial advantage over the US. He singled out China and India saying neither have plans to reduce greenhouse gas emissions. He has a point.

It is hard to argue against any plan created to save the planet. The problem, as always. is the politicians.

In Canada, for example, the Liberal government is a huge supporter of the Paris accord. But if you think it is because they believe they trying to save the planet, you still believe in Santa Claus. The government gets to cloak increased taxes in the garb of environmental protection.

It is a blatant tax grab.

The Province of Ontario is a perfect example. Their cap and trade scheme, sold as revenue-neutral, transfers an additional $2 billion per year into government coffers.

Taxpayers pay more for home heating, transportation, as well as all the increased costs passed on to them by business. In addition, provincial sales tax revenues increase because of the higher product price.

It also puts Canada at a competitive disadvantage versus America. Why would China buy carbon-taxed Canadian crude when they can get lower-priced American crude?

If Canadian companies are saddled with added costs from carbon taxes while American companies are exempt, Canadian businesses risk being priced right out of the American economy.

The loonie would not fare well in that environment.

USDCAD daily:

Source: Saxo Bank

The week ahead

This week could start slow and finish with a bang. There are data risks, central bank risks, and UK political risks… and a lot of them are concentrated in the last two days.

On Monday, Asia will get off to a slower start thanks to a holiday in New Zealand. It is also Markit Services PMI Day in China, the Eurozone, the UK, and the US.

Tuesday, the Reserve Bank of Australia is expected to leave interest rates unchanged and provide a mildly positive tone in the statement. The rest of the day may be dull. There isn’t much in the way of data in Europe or the US, leaving traders to fret about upcoming events.

Wednesday,will shape up like Tuesday. Australian GDP data could give AUDUSD a boost. The impact from Eurozone GDP data may be muted due to the European Central Bank meeting the next day. The US data cupboard is almost bare ensuring another quiet session.

Thursday, the UK election will be the focus but since the results won’t be known until after the New York close, the ECB will hog center stage. The tone of the statement and Mario Draghi’s press conference will be key. Traders seem to be anticipating/hoping for a change in Mario Draghi’s dovish tone. The reaction could be huge.

Watch this space. Photo: Shutterstock

In addition, traders will have to deal with trade reports from Australia, Japan, and China. New York traders will be distracted by former FBI director James Comey’s testimony to Congress.

Friday, GBPUSD will be explosive in thin Asia markets, depending upon the result. The election will overshadow a slew of UK economic releases including CPI, PPI, and trade. The week will finish with Canada ‘s unemployment report. There aren’t any major data from the US.

The week that was

It was a short week; it was a busy week. At least that is how Dickens might have described it…

Monday was mostly a write-off due to holidays in China, the UK, and the US. USDJPY gapped lower at the open on early risk-aversion jitters due to another North Korean missile launch, but the gap was quickly filled. EURUSD inched lower on a dovish Draghi speech where he said stimulus was still needed.

Tuesday, it was back to work for everyone except for China. Traders reacted to Draghi’s remarks in Asia and sold EURUSD from 1.1170 to 1.1104 just before Europe opened. Europeans had a different opinion and EURUSD was at 1.1165 when New York started. New York extended the rally to 1.1205 after a soft US consumer confidence number and it finished the day at 1.1155.

A Reuters story citing “sources” suggested that the ECB would adopt a less dovish tone in the next policy statement gave added support to EURUSD.

Oil prices drifted lower, undermined by a Goldman Sachs report that lowered the 2017 average price for crude to $52.39/barrel from $54.80/b – which as forecasts go, is very precise.

USDJPY traded choppily inside a 110.65-111.20 range and finished the day just above the low. UK polls showed the Conservative lead over Labour shrinking rapidly, putting downward pressure on sterling during the New York session. GBPUSD dropped from 1.2885 to 1.2840 by the end of the day.

Wednesday, traders had to deal with another UK poll, month-end portfolio rebalancing flows, and a new word from president Trump (covfefe).

In Asia, GBPUSD plunged from 1.2857 to 1.2790 when a UK poll predicted a hung parliament. Elsewhere, a better-than-expected China Manufacturing PMI gave AUDUSD and NZDUSD a short boost which continued throughout the European session. USDJPY recouped all of Tuesday’s New York losses and EURUSD stayed rangebound. Canada Q1 GDP at 3.7% was as expected, but traders focused on falling oil prices.

US economic data were mixed and were unable to offset month-end US dollar selling against EUR, JPY, and GBP. Sinking commodity prices drove the commodity bloc currencies lower.

Thursday was a new month, but Trump was up to his old tricks. Late in the day, he announced that he was taking America out of the Paris accord. FX markets didn’t seem to care but Wall Street reacted by buying equities.

The day wasn’t just about Trump. In Asia, a weak Caixin China PMI report trumped a strong Australia Retail Sales report and sent AUDUSD tumbling from 0.7452 to 0.7386. Kiwi tracked AUDUSD down. UK election concerns weighed on GBPUSD which bottomed out at 1.2830 when New York opened.

USDJPY recouped the previous day’s losses on fresh US rate hike concerns. EURUSD traded sideways as New York bought US dollars. Stronger than expected ADP employment and robust ISM Manufacturing PMI data were the catalysts. Traders ignored more “bad news for PM May” UK polls and bought sterling.

Friday was nonfarm payrolls day. Earlier labour reports suggested that the print would surpass expectations, and intraday traders appeared positioned that way. Alas, it was not to be and the US dollar got walloped.

Sterling bounced on the NFP data but UK polls warning that the Conservative majority may be at risk weighed on the currency. USDJPY crashed with traders discounting an aggressive Fed policy .

Some of the rage and anxiety over Trump’s Paris accord decision relates to scenes like these. Some, however, relates to more… pecuniary concerns. Photo: Shutterstock

— Edited by Michael McKenna

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