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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Author: Loonieviews

In the past 30+ years, I have been an FX interbank market making trader, a high performing FX and Derivatives Sales person, creator of simple and complex risk mitigation strategies and a manager of high performance FX teams. The Trade of the Day is a culmination of that experience. Retail FX traders have access to a well-crafted and carefully researched FX trade strategy designed to generate FX profits while mitigating losses.

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