Is it Looney to be Long Loonies?

· Traders spent Friday eagerly awaiting Yellen and Draghi’s speeches at Jackson Hole

· US durable goods data were close to expectations and ignored

· USDCAD has dropped 7% since BoC’s June policy shift, and charts remain bearish

· FX markets should be fairly volatile next week due to data and month end.

The Canadian dollar gets its nickname "loonie" from

this elegant bird, the loon. Photo: Shutterstock

By Michael O’Neill

Traders are just glad that this week will soon be over, as much of it was spent waiting for central bankers, including the Fed chief Janet Yellen and the ECB president Mario Draghi, to speak at Jackson Hole, Wyoming.

Yellen was scheduled to begin speaking (shortly after the time of writing) at 1400 GMT and Draghi at 1900 GMT on Friday.

Meanwhile, USDCAD has dropped 7% since the Bank of Canada announced a shift to tighter policy in mid-June. In that time, EURUSD rallied 5.25%, and AUDUSD climbed 4.94%. No other currency pair (among the majors) is even close.

How big of a drop is too big?

If you believe the currency strategists from CIBC, the answer is right around the current level. They think the market has got ahead of itself regarding Bank of Canada and Fed rate hike paths. CIBC does not think that Canadian rate increases will surpass those of the US by the end of 2017, eliminating one reason for selling USDCAD. They expect the BoC to signal a “go-slow” approach in September, hike in October and then hit the pause button. Meanwhile, renewed interest rate increases by the Fed will boost USDCAD.

CIBC Forecast of rate increases for Canada and US

Source: CIBC Monthly FX Outlook

TD Bank strategists point to a slowdown in third-quarter GDP growth, which should limit USDCAD downside. They also believe that most of the good economic news is already priced into the currency.

The state of the NAFTA negotiations may also put a floor under USDCAD. US president Donald Trump is still threatening to "terminate" the agreement, even as the parties are supposedly negotiating in good faith.

On the other hand, the USDCAD technicals are bearish. The downtrend from the peak of 1.3765 on May 10 has survived many tests and is still intact while prices are below 1.2770. A decisive break below the 2017 low of 1.2415 would target 1.2280 and then 1.2170, with 1.2000 acting as a magnet.

Oil prices are steady. If Opec is right and the supply/demand imbalance begins to normalise near the end of this year and in early 2018, USDCAD rallies will be capped.

Speculative long CAD positions are not at extreme levels, which should reduce the risk of a spike in USDCAD triggering large stop-loss orders.

President Trump is the US dollar’s worst enemy. His mostly brain-dead comments have been a major source of USD weakness in the past and he is unlikely to change.

The USDCAD is stale. It is overdue for a correction, but as long as the BoC is in a tightening mode and the Fed stays cautious, the bearish USDCAD technicals will prevail.

USDCAD daily

Source: Saxo Bank

The week ahead

The coming week will make up for whatever the previous week lacked in data and drama. It will end with a bang, thanks to the US nonfarm payrolls report on Friday.

On Monday, Asia will deal with any fallout from the Jackson Hole speeches by Yellen or Draghi. If the speeches are “non-events,” it will be a very quiet day due to a lack of top-tier data and a UK bank holiday.

Tuesday will start with Japan’s unemployment report, and if that doesn’t cause a stir, it will be a fairly quiet day again. European and US economic releases are third-tier.

Wednesday will bring plenty of data to cause a commotion. Japanese retail sales, New Zealand building permits and Australian construction figures will be the focus in Asia. UK mortgage approvals and individual lending reports will distract GBPUSD traders. EURUSD will be guided by German HiCP and Eurozone sentiment indicators. US second-quarter GDP and the ADP employment change report will keep New York traders busy.

On Thursday, Japan’s industrial production data is slated for release. China will enter the fray with NBS PMI data, which will keep Aussie traders on their toes. It’s a big day in the Eurozone. August CPI, German retail sales, and unemployment reports will set the tone for the rest of the day. The US has a lot of data on tap, including jobless claims, Chicago PMI, personal consumption expenditures price index, and pending home sales. Canada’s June GDP will be the focus for USDCAD traders. It is also month-end which brings the usual portfolio rebalancing flows.

On Friday, the US Labor Department’s August employment report (nonfarm payrolls forecast: 185,000), average hourly earnings (forecast: 0.3%) and unemployment rate (forecast: 4.3%) will overshadow the data releases in Asia and Europe.

The week that was

FX traders didn’t expect much trading action this week due to the possible risks from the Fed’s annual Jackson Hole symposium. They saw President Trump as the only trading catalyst. They were right on both counts.

Monday might as well have been Sunday, judging by the FX activity in Asia and Europe. It got a little better in New York. A rumour that the ECB’s Draghi would use Jackson Hole as a forum to announce the end of quantitative easing powered EURUSD o 1.1827 from 1.1732. USDJPY inched lower, partly due to US military exercises in South Korea antagonising North Korea. The commodity currency bloc finished on an "up" note, though the highlight of the day was the solar eclipse.

Tuesday was a lot like Monday, except without the Draghi rumours. Asian FX activity was almost non-existent. It got a little better in Europe when a weaker-than-expected Eurozone ZEW survey drove EURUSD lower. Sterling followed suit, and the US dollar opened in New York with gains across the board. But it didn’t end that way. FX traders ignored a good rally on Wall Street, sparked by rumours that the White House was making progress on tax cut plans. The American Petroleum Institute’s weekly crude stocks data appeared to have been leaked as the actual 3.5-million-barrel drawdown was the same as the whisper number.

On Wednesday, the New Zealand Treasury released a pre-election fiscal and budget update. It downgraded the growth outlook, and traders downgraded NZDUSD. USDJPY drifted higher, but the rally stalled, and prices declined. EURUSD popped when Markit PMI data beat forecasts.

New York markets reacted to Trump’s comments from the previous evening when he threatened to shut down the government if he doesn’t get funding for his Mexico border wall. Those comments, weaker-than-expected US Markit PMI data and Fitch warning about the US AAA debt rating if the debt ceiling not raised, drove the USD and Wall Street lower. Oil prices climbed after the US Energy Information Administration reported another drawdown in crude oil inventories

Thursday was very quiet in Asia, Europe and New York. Traders were reluctant to trade ahead of speeches by Fed chief Yellen and the ECB president Draghi on Friday. So they didn’t. NZDUSD barely reacted to news of a trade surplus in July. Oil prices were firm due to fears that a major storm would disrupt Gulf of Mexico production. US data was mixed. Jobless claims beat forecasts, while existing home sales missed. Oil prices dropped 1.2% on fears that refinery closures on the US Gulf Coast due to Hurricane Harvey would reduce demand for crude.

On Friday, FX markets weren’t closed, they just seemed that way. Even the usually entertaining US durable goods orders didn’t cause much of a stir due to the shadow of the Jackson Hole symposium.

Grand Teton National Park in Wyoming. Central bankers have

gathered in nearby Jackson Hole. Photo: Shutterstock

— Edited by John Acher


Does NAFTA spell ‘Not Another Failed Trump Action’?

Does NAFTA spell ‘Not Another Failed Trump Action’?

Michael O’Neill

FX Trade Strategist /


· USDCAD drops even though Canada CPI data came in as expected

· Talks to revise NAFTA began on August 16

· Dog days of summer next week due to a lack of top-tier economic reports

· President Trump’s antics will keep FX majors in their current broad ranges


Niagara Falls on the US-Canadian border. Photo: Shutterstock

By Michael O’Neill

NAFTA is the acronym for the North America Free Trade Agreement.

Ripping up the NAFTA deal was a cornerstone of Donald Trump’s presidential campaign last year, and the renegotiations began on August 16.

He said he would repeal Obamacare, but failed. He said he would build a wall between Mexico and the US — failed. He said he would ban Muslim immigration — failed. He promised huge infrastructure spending — failed. He promised massive tax cuts — failed that too.

The President needs a win, and he might have a chance with NAFTA.

Robert Lighthizer, the US trade representative, gets his marching orders from Trump. Canada’s foreign minister Chrystia Freeland gets her direction from prime minister Justin Trudeau. Advantage USA.

The US wants:

• modernise or create provisions that protect digital trade and services trade, e-commerce, update customs procedures, protect intellectual property, improve energy provisions, enhance transparency rules, and promote science-based agricultural trade.

Canada wants:

• A new chapter on gender rights and a new chapter on Indigenous rights.

Somehow, the fact that it is a trade negotiation is lost on Canada.

Advantage: USA.

The US wants:

• A reduction in huge trade deficits, asking for balance and reciprocity. They want higher NAFTA content in autos and auto parts.

Canada wants:

• A new chapter on environmental standards. Again, Canada appears blissfully unaware of the definition of trade.

Advantage: USA.

The US wants:

• Equal access and reciprocity in government procurement and agriculture.

Canada wants:

• Protect Canada’s supply-management system for dairy and poultry. Canada does not have free trade in these areas and regulates imports and prices.

Advantage: USA, mainly because it is an easy concession for Canada to make, to win something else.

The US wants:

• Dispute settlement provisions should be designed to respect national sovereignty and democratic processes. Essentially, the US wants their legal to rule on trade disputes.

Canada wants:

• To keep the current process

Advantage: unknown.

There is more, but it does seem that President Trump’s policy of "Tweeting loudly and threatening with a big stick" gives the US an edge. If so, it may limit Canadian dollar gains, at least until the September central bank meetings begin.

The week ahead

At least there’s President Trump to stir the pot. Otherwise, this would probably be a week epitomizing the dog days of summer.

Monday will start quietly and then get progressively quieter until the New York close. The slated economic data is all third-tier.

Tuesday won’t be much different in Asia. Europe could be a little livelier with the German and Eurozone ZEW surveys on tap. In New York, the main data release is housing starts which isn’t much. Canadian retail sales are also due.

Wednesday looks to be another quiet one in Asia. Europe heats up a bit with a series of preliminary Markit manufacturing and services PMIs and the UK inflation report hearings. New York offers up more housing data, and Markit PMI reports.

On Thursday, New Zealand’s trade report and Japan’s leading economic index may could create some trading activity. It is also the first day of the Fed’s Jackson Hole symposium, billed as "Fostering a Dynamic Global Economy." UK GDP and business investment data should keep GBPUSD traders busy. The US data (jobless claims and home sales) will be non-events.

On Friday, Japanese CPI is the highlight in Asia. Europe will be busy dealing with German GDP and IFO reports. The US releases durable goods orders.

The week that was

On Monday, Asia breathed a sigh of relief when no nuclear missiles landed anywhere at the weekend despite the fiery exchange of words between Trump and North Korea. Safe-haven trades were unwound, and the US dollar drifted higher the entire day. Weaker-than-expected China data, which included industrial production and retail sales, weighed on the Antipodeans, and, by mid-morning in the US, on oil prices as well.

Japan recorded stellar second-quarter GDP growth, but it only had minimal impact on trading.EURUSD peaked at 1.1837 in the European morning session. Eurozone industrial production was a tick lower than forecast and had nothing to do with the EURUSD slide to the New York close of 1.1788. Oil prices got spanked after the options expiry time in New York, dropping 2.4% partly due to the soft China data and the modestly firmer greenback. Traders appeared to ignore New York Fed president William Dudley saying that he favours of another rate hike in 2017 if the data supports it.

On Tuesday, Asia traders thought Dudley was on to something, and they bought dollars. USDJPYopened with a bid at 109.62 and climbed steadily to 110.46 by the New York open. AUDUSDrallied on the upbeat minutes from the Reserve Bank of Australia’s meeting, but the move didn’t last.

GBPUSD traded with a negative bias in Asia. Prices dropped further on the release of UK retail sales, PPI and CPI and a smattering of Brexit headlines. GBPUSD fell to 1.2875 from an overnight peak of 1.2968. EURUSD was uneventful in Asia, but bounced in a 1.1721- 1.1780 range after a bump in German GDP. Oil prices dropped 3.6% after China reported a decrease in crude imports for July. US retail sales led a parade of upbeat economic releases and kicked off a dollar buying frenzy in New York. The greenback finished the day with gains across the board.

On Wednesday, the dollar demand from the New York session extended into Asian trading. AUDUSD rallied steadily from the opening low of 0.7817 to 0.7867. USDJPY merely consolidated Tuesday’s gains. In Europe, better than expected Eurozone GDP had EURUSD bouncing in a 1.1697-1.1757 range. UK unemployment reached a 44-year low. Sterling didn’t. GBPUSD rallied to 1.2901 from 1.2843.

Chaos reigned in New York — well, Washington really. President Trump fired all his advisory manufacturing panel members to avoid the embarrassment of them resigning. Oil prices tanked despite the US Energy Information Administration reporting a significant drop in crude inventories because gasoline inventories did not fall. The Federal Open Market Committee’s minutes of its July meeting were interpreted as dovish, and the USD was sold. It ended the day down against the majors, except for sterling, which was flat.

On Thursday, in Asia, the fall-out from the FOMC minutes was fleeting. AUDUSD rallied, getting an additional boost from a 27,900 rise in employment, while NZDUSD mirrored AUDUSD moves. USDJPY found a bottom in Asia.

In the European session, UK July retail sales beat expectations, but downward revisions to the June data drove the currency down to 1.2861 in early New York trading. EURUSD’s rally after the FOMC meeting minutes from 1.1692 peaked at 1.1789 in Europe and dropped to 1.1703 by the New York open. That was despite reasonably upbeat trade and inflation data.

The New York session was loopy. EURUSD extended losses when the European Central Bank’s minutes showed concerned about the high level of EURUSD, but the move didn’t last. EURUSD rallied. USDJPY dropped further when a terrorist attack in Barcelona sparked risk-aversion. The commodity bloc currencies were hammered, and AUDUSD was the worst-performing currency.

On Friday, mild risk-aversion rippled across Asia and Europe. The US opened with small losses against everything, except the Swiss franc, which was flat.

It’s been another bumpy week at the White House. Photo: Shutterstock

— Edited by John Acher


USDCAD rally is a correction not a trend change 4aUG17

USDCAD rally a correction not a trend change

Michael O’Neill

FX Trade Strategist /



· US dollar rallies in a nonfarm payrolls corrective move

· NFP rebounded to growth of 209,000 jobs in July, beating estimates

· Canada employment report adds to "robust" Canadian economic recovery story

· US inflation data will be the highlight next week

The market’s attitude now is that all the good news for the loonie

is priced in. Image: Shutterstock

By Michael O’Neill

The week ended with a bang when the recently battered US dollar rallied against major currencies after a stronger-than-expected US jobs report.

USDCAD has found a floor. The 1.2410-15 area stopped a free-falling dollar in its tracks, last week, and it spent this week with an underlying bid tone. Prevailing sentiment is that all the good news for the Canadian dollar is reflected in the price.

That may be true, but there isn’t a whole lot of bad news to support a large top-side rally.

Canada posted strong GDP growth numbers on July 28, far stronger than expected, yet that news was forgotten by the end of the day.

The August 4 employment report showed Canada added 10,800 new jobs in July, the eighth consecutive month of gains. The unemployment rate at 6.3% is the lowest it’s been since October 2008.

Canada’s merchandise trade deficit widened in June due to a decline in exports. The export decline comes after three months of record highs, so some payback was warranted.

Canada trade data

Sources: Statistics Canada

Oil prices rallied to $50.40/barrel on August 1 from $42.08/b in June. US crude inventories have been declining. Opec is talking about extending production cuts beyond March 2018 and may have talked Nigeria into agreeing to production caps.

After all that, USDCAD is bid. That has a lot to do with FX traders’ mindsets. At the beginning of June, speculators were holding short Canadian dollar positions that were at or near record levels. They started to bail when the Bank of Canada shifted to a tightening policy. That US dollar selling coincided with an oil price rally.

At the same time, markets were re-evaluating their outlook for the Fed. Expectations for a third-rate increase, initially in September then pushed back to December, have diminished even further. That led to broad USD selling that is continuing.

The USD rallied after July US nonfarm payrolls beat expectations on Friday with a 209,000-job increase, but the dollar rally looks an like an overdue correction in a typically thin summer market. Two inflation reports and another nonfarm payrolls report are due before the next Federal Open Market Committee meeting.

The current USDCAD rally is only a correction, unless there is a decisive break above the 1.2750 area

USDCAD daily

Source: Saxo Bank

The week ahead

The week ahead could explain why the term “summer doldrums” is used in reference to FX markets. There is a lot of data, most of it second-tier, except for US CPI on Friday. The Reserve Bank of New Zealand policy meeting may be the highlight of the week.

On Monday, Australian construction data will be the highlight in the Asia-Pacific. Swiss CPI is the major European data release, while the US offers the labor market conditions index.

Tuesday, China trade data could set the tone for Asia. Germany’s trade data won’t have much impact, and the US brings weekly American Petroleum Institute crude oil inventories.

On Wednesday, Australian consumer confidence and home loans as well as China inflation data will entertain traders in Asia. Europe and the US will be bored to tears, unless US weekly EIA crude oil stocks generate any interest at the end of the day.

Thursday, the RBNZ will provide the excitement in the Asia-Pacific region, and, if that’s not enough, New Zealand electronic card retail sales will be on tap. Australian inflation expectations are also due. Sterling traders may come to life when UK industrial production and trade data are released. The US data is not exciting.

On Friday, US CPI is the marquee event. Traders will be looking for evidence to support views of whether the Fed will leave rates where they are or hike them again.

The week that was

This week, a blast of data, two central bank meetings and the US July employment data pointed to FX volatility. For the most part, it didn’t happen.

Monday was the end of July. The usual disruption from portfolio rebalancing flows was missing in action. China’s official manufacturing PMI missed forecasts and non-manufacturing PMI was as expected. That data and a soft New Zealand confidence indicator pressured NZDUSD until New York opened. AUDUSD was more resilient, dropping to 0.7958 from 0.7989 before reversing on rising copper prices.

USDJPY was rangebound in a 110.32-75 band, with traders skittish after another North Korean missile test. EURUSD and GBPUSD chopped about in tight ranges while ignoring Eurozone and UK PMI data.

Oil prices climbed. WTI touched $50.40/barrel in Europe on expected inventory drawdowns and the soft dollar.

US PMI data did not have much impact on markets. Washington sure did. President Donald Trump fired his recently hired communications director. Traders saw White House dysfunction as a reason to sell USD, although not aggressively. The day ended with minor USD losses against the majors, except for the antipodeans, which were flat.

On Tuesday, the Caixin China PMI beat the market expectation, which underpinned both AUDUSD and NZDUSD. The Reserve Bank of Australia held rates steady and after a bit of noise, AUDUSD was unchanged as well. USDJPY dropped to 110.01 on White House dysfunction concerns.

EURUSD drifted down from its peak of 1.1843 to 1.1808, thanks to soft PMI data. Across the channel, UK PMI data was better than expected. GBPUSD popped to 1.3250.

In New York, USDJPY hit 109.92 when ISM manufacturing and construction spending disappointed. The rest of the majors weren’t bothered by the data. WTI dropped 2% on news that Opec’s July production increased. The USD rallied during the New York session and closed with gains across the board.

On Wednesday, weak New Zealand data (Q2 actual 0.2% vs. forecast 0.7%) sent NZDUSD down to 0.7418.from 0.7472. USDJPY rallied to 110.91 from 110.31, supported by rising Treasury yields and an uptick in the Nikkei. In Europe. EURUSD climbed to 1.1867 from 1.1790, bolstered by the belief that the Fed is on hold and that the European Central Bank is getting set to taper its quantitative easing. GBPUSD hovered around 1.3250, ignoring data.

The New York session tried to get going when ADP employment data missed the forecast. It didn’t. The miss was tiny. Oil prices drifted higher after the EIA reported a smaller than expected draw-down in crude inventories. USDCAD stayed bid despite the oil price rally.

Thursday, the antipodean currencies were pressured by weak economic data. EURUSD and USDJPY were rangebound inside tiny bands until the Bank of England took the stage. The BoE left rates unchanged, but downgraded inflation and growth forecasts in its quarterly inflation report. Traders got spooked. GBPUSD tanked, dropping from an overnight peak of 1.3267 to 1.3114 in New York trading. By day’s end, sterling was the only currency to lose ground against the USD.

On Friday, Asian and European FX markets were quiet, while traders awaited US July employment data. A nonfarm payrolls increase of 209,000 in July beat forecasts, leading to US dollar buying across the board.

— Edited by John Acher