Annual Christmas Poem

T’was just days before Christmas

By Michael O’Neill (Apologies to Clement C Moore)

T’was just days before Christmas and all around the world

Not a trader was stirring, after their liquid lunch had been hurled

Bonuses were big but Christmas parties were dull fare,

For fear Harvey Weinstein types, would soon show up there.

Wall Street traders were bouncing up and down on their beds

While visions of the Dow at 25k, danced in their heads

Janet Yellen in a kerchief, packed her desk into a box.

the Fed chief was done, her legacy being a rally in stocks.

In the EU and Britain there arose such a clatter

We knew that politicians had started to natter

On TV was a smiling Juncker and May.

Apparently, the pair had something important to say.

“An accord has been reached” the politicians raved

Those in the know knew that Britain had caved.

The UK pays billions and May won’t lose sleep

Proving once and for all that talk is not cheap.

Across the pond in America, the ol’ USA

More politicians were acting like they had something to say

The TV was tuned to CNN for views

Forgetting that all we would hear was “fakenews.”

The orange haired leader with the spray-on tan

Stared out from the TV, it was Hillary’s bogeyman.

President Trump whistled and shouted and called people names

Now Ryan, now Tillerson, and Pelosi you vixen

Working with you all makes me want to get blitzen”

His eyes were quite beady, they didn’t twinkle a bit

His lips were a smirk like he didn’t give a whit

He was neither chubby or jolly, perhaps too long on the shelf

A feeling of uneased washed over myself.

He spoke a lot of words, with hyperbole galore

“the best Middle class Christmas gift ever,” is in store.

Tax cuts for everyone; the poor and the wealthy,

Thanks to an economy that’s booming and healthy.

Then with thumb and forefinger together, three fingers in air

The President said “America is great again, that I do swear”

He jumped in his limo and as he roared out of sight,

I heard him exclaim, Merry Christmas to all and to all a good night.”

Merry Christmas and Happy New Year. All the best in 2018


Dance Like Nobody’s Watching 15Dec17

Dance like nobody’s watching

Michael O’Neill

FX Trade Strategist /


· Central banks appear united with dovish policy statements

· BoC governor stirs the loonie pot while discussing his sleep habits

· Top tier data releases ahead although liquidity could be thin

By Michael O’Neill

Bank of Canada (BoC) governor Stephen Poloz fiddles and USDCAD traders dance like nobody’s watching.The evidence was clear this week when the governor put a different spin on last week’s policy statement." Step right up and dosey do. Shift those rate forecasts to and fro."

In September, the BoC raised interest rates for the second time in 2017. It was in response to strong economic growth. The BoC statement stressed that “monetary policy decisions are not predetermined and will be guided by incoming economic data.”

Another rate hike was expected in 2017, but not in October. Economists and analysts assumed that the BoC would prefer to assess the impact of the previous two hikes, before raising rates again suggesting a year end move was likely. The bank statement noted, “the Bank will be guided by incoming data."

Canadian economic reports between October and December 6, reflected strong growth. The November and December employment reports combined for a gain of 118,800 jobs while Q3 GDP growth surprised to the upside. The Ivey PMI survey and housing starts were robust and above forecasts. If Bank of Canada rate hikes were “data dependent”, the recent data suggested rates would increase on December 6.

USDCAD reversed earlier losses and was threatening to break support in the 1.2640-60 area ahead of the BoC statement. It didn’t happen. Instead, the supposedly “data-dependent BoC” became “geopolitical and trade pact” dependent. The BoC cited trade concerns (traders read NAFTA) as a major reason why rates did not move.

USDCAD rallied and came within spitting distance of the pivotal 1.3000 level. which may have raised eyebrows in Ottawa. Poloz missed the spotlight on December 6 because there wasn’t a press conference scheduled. He made up for it on Wednesday, December 13 when he gave a speech titled “Three Things Keeping Me Awake at Night.”

With a title like that, traders can be forgiven for thinking the speech would highlight risks to the domestic economy and undermine the currency.

It didn’t. The loonie got a lift. The three things keeping the governor awake at night are: 1) Cyber threats, 2) high house prices and household debt 3) the tough job market for young people.

The NAFTA negotiations didn’t make the cut. USDCAD dropped to 1.2715, perhaps on the assumption that if the BoC isn’t worried about NAFTA negotiations failing, why should traders?

More than likely, the move was just a reaction by intraday day traders caught long USDCAD and wrong. The NAFTA negotiations are a major threat to the Canadian economy and will continue to be ahead of the March 2018 deadline.

US rate hikes and the possibility of new appointments leading to a more hawkish FOMC board should continue to support USDCAD for the next month or two.

The week ahead

The calendar says that this is the last full trading week of 2017. The reality is that last week was. Nevertheless, there are some major data releases which could trigger outsized moves in thin, year-end markets.

Major Event:

Thursday: Bank of Japan Interest rate decision, policy statement and press conference. The BoJ is expected leave policy and rates unchanged.

Major Data:

Monday: Eurozone November CPI (forecast 1.5%, vs previous 1.5%, y/y). Will an upside surprise be enough to counter Mario Draghi’s still dovish outlook?

Tuesday: Australia RBA meeting minutes, and the Australian government mid-year economic and fiscal outlook, German IFO survey and US housing starts and building permits.

Wednesday, New Zealand trade balance, and GDP.

Thursday, US Q3 GDP (forecast 3.3% vs previous 3.3%, y/y) Canada November CPI (forecast 0.1% m/m)

Friday, UK Q3 GDP (forecast 0.4% vs previous 0.4%, q/q), US durable goods, (forecast 1.6%) core personal consumption expenditures, Canada October GDP.

The week that was

There wasn’t a lot expected from the three major central bank meetings that were scheduled. Those expectations were met.

Monday, Asia and Europe saw US dollar selling as the greenback pared gains following Friday’s nonfarm payrolls report. The first day of Bitcoin futures trading dominated the news with prices rising over $18,000 from $15,000. The New Zealand government appointed Adrian Orr governor of the Reserve Bank of New Zealand. NZDUSD rallied on the news. Sterling was under pressure the entire day due to Brexit concerns and soft data. EURUSD was rangebound. A bungled bombing attempt created a bit of a stir in the early New York morning but markets suffered no ill effects. The day closed with the US dollar posting gains in pre-FOMC position adjustment trading.

Tuesday, the looming FOMC meeting cast a pall over trading. Asia was as dull as dirt. The impact from UK data, including retail sales, DCLG home prices, PPI and CPI was over in the blink of an eye. EURUSD was a tad offered after a mixed German ZEW report. The US dollar opened in New York with small gains and finished the session with small losses. The tax reform plan wobbled when Kentucky Senator Rand Paul tweeted about his reluctance to support “adding more to already massive $20 trillion debt” USDJPY got spanked. However, position tweaks and better than expected US PPI data drove the greenback to across-the-board gains by the end of the day. Oil prices retreated sharply from the peak of $58.53.

Wednesday, news that the Democrats beat the Republicans in a special election in Alabama, undermined USDJPY, in a quiet pre-FOMC meeting Asia session. Sterling churned in a 1.3313-1.3366 range when the UK employment report was released. EURUSD traders ignored German inflation data, Eurozone industrial production, and employment reports. The US dollar stumbled on weak vore CPI data and then got the stuffing knocked out of it when the FOMC delivered a dovish rate hike. Gold gained 1.3% while WTI oil prices dropped 2.1%.

Thursday, Asia added to the US dollar’s post-FOMC statement losses. AUDUSD got an added lift from a better than expected employment report. NZDUSD got hit when the new minority government downgraded growth forecasts in its first economic and fiscal report. In Europe, the Swiss National Bank left rates unchanged. So did the Bank of England but a dip in Q4 growth forecasts knocked GBPUSD for a loop. The European Central Bank left rates unchanged and tweaked growth and inflation forecasts higher. The EURUSD rally was cut short when ECB president Draghi reminded markets that substantial stimulus was still needed. US economic reports including retail sales and initial jobless claims beat the forecasts. Despite the strong US data, only sterling and the euro lost ground on the day. USDCAD dove after the Bank of Canada governor appeared to change his mind about the interest rate outlook. Wall Street closed with losses despite Disney buying Fox for $52.1 billion.

Friday, the US dollar opened in New York after a quiet overseas session. Traders were concerned about US tax reform uncertainties after Senator Marco Rubio threatened to vote against the bill.

– Edited by Clare MacCarthy


BoC Governor baits the mousetrap

Bank of Canada’s governor baits the mouse trap

Michael O’Neill

FX Trade Strategist /



· Better than expected NFP data does not impress the market

· FOMC, ECB and BoE policy meetings are the highlight next week

· Ongoing US tax reform discussions will also haunt markets

Next week, we’ll all be in thrall to the world’s central banks. Pic: Shutterstock

By Michael O’Neill

The Bank of Canada suckered FX traders again. After the Bank of Canada (BoC) governor, Stephen Poloz, repeatedly warned that policy would be governed by “incoming data” and “higher interest rates being required over time,” traders focused on economic reports. Those incoming reports were solid.

Most recently, robust Q3 GDP data and a surprisingly large, 79,500 gain in new jobs led many traders to conclude that the December 6 BoC policy statement would be a tad hawkish. A few even expected a rate hike.

But the statement was hawkish, and it wasn’t so. The bulk of the short statement painted a relatively upbeat outlook for the domestic economy. The BoC noted that: a) Growth moderated but would remain above potential in Q3; b) more evidence that business and infrastructure spending is contributing to the growth; C) labour market slack is diminishing.

Poloz baited the spring-loaded mouse-trap with tantalizing policy tidbits. The FX mice take the bait, the bar snaps down, and mouse-guts splatter over the trade blotter.

That’s exactly what happened when the BoC wrote they were concerned about “geopolitical developments and trade policies.” Traders read NAFTA, not trade policies. Forty-six years ago, The Who sang “Won’t get fooled again.” USDCAD traders apparently never heard the tune. Instead, they were channelling Britney Spears, singing “Oops, I did it again," and scrambled to buy USDCAD driving the currency from 1.2655 to 1.2867 by Friday.

The USDCAD technicals are bullish inside the well-defined 1.2660-1.2915 range. Firm oil prices and the prospect of higher prices down the road are supporting top-side resistance while the risk of widening Canada/US interest rate differentials are supporting the bottom.

The week ahead

This will be the last full week of FX trading before the holiday season festivities sideline many traders.

Major Events:

Wednesday: The FOMC meeting and outgoing Fed chair Janet Yellen’s press conference will be significant as it will signal the start of the Christmas/New Year holidays. A 0.25% rate increase is a given, and Janet Yellen’s Joint Economic Testimony is still fresh. Earlier, FOMC members said that they needed clarity over proposed tax reform policies before they could adjust their forecast. If no tax deal by Wednesday, this meeting will be a yawner.

Thursday: The Bank of England interest rate decision/minutes are released. Rates are expected to be left unchanged, but Brexit issues and Mark Carney are wild cards.

The European Central Bank meeting may be a bit of a non-event. The excitement of a tapering announcement has come and gone, but it is too recent for any new policy changes.

The Swiss National Bank policy decision is due. The SNB will leave rates unchanged and express happiness with the weaker Swiss franc against the euro

Major Data:

Tuesday: UK CPI data (forecast 3.0%) A higher than expected print would make Thursday’s BoE meeting a tad more exciting.

Wednesday: UK data again, this time the employment report. The unemployment rate is forecast to be unchanged at 4.3%

Thursday: Australia’s employment report is due. The forecast is for a gain of 20,000 jobs.

Eurozone preliminary PMI data for December is due but the ECB meeting the same day should negate any FX impact.

Friday, Eurozone trade and US Industrial Production and Capacity reports will usher in the holiday season.

The week that was

Monday, Friday’s losses were reversed when Asia started the week focused on the pending US tax reform deal. Better than expected domestic data lifted AUDUSD. Data didn’t help EURUSD, but weak UK construction PMI hurt GBPUSD. Everything was forgiven because of optimism over upcoming Brexit negotiations, and GBPUSD soared from 1.3420 to 1.3532. The optimism turned to pessimism when the Northern Ireland DUP party rejected the UK/EU border plan. GBPUSD collapsed to 1.3420.

Tuesday, AUDUSD was front and centre. The RBA left rates unchanged, and delivered a neutral statement, as expected. The jump in retail sales wasn’t, and AUDUSD rallied from 0.7605 to 0.7652. That move reversed by the close in New York. NZDUSD was underpinned by a speech from the acting governor, Grant Spencer, suggesting that changes in the RBNZ mandate won’t change the interest rate outlook. EURUSD traded sideways in Europe and then bounced in a tight range in New York. GBPUSD was hurt by concern about the Brexit negotiations. The US dollar closed in New York with gains across the board. Sterling was the outlier. The greenback demand was driven by position adjusting ahead of Friday’s payrolls report and hopes for a tax deal. Oil prices climbed on a decline in US crude inventories.

Wednesday, was a mundane FX session across the globe. USDJPY was under pressure in Asia after a BoJ official commented on side effects of monetary stimulus programmes. Australian GDP missed forecasts, undermining AUDUSD while a higher Global DairyTrade auction gave NZDUSD a lift. Sterling was under pressure due to concerns from Brexit. In New York, EURUSD traded lower on bearish technicals and position adjusting ahead of Friday’s nonfarm payrolls report. USDCAD rallied 1.2% after a somewhat dovish Bank of Canada statement. Oil prices dropped after a rise in gasoline inventories was reported. The US dollar closed in New York with gains against the majors except for the Japanese yen and British pound. They were unchanged.

Thursday, AUDUSD got off on the wrong foot. The Australia trade surplus narrowed to almost flat. AUDUSD came under pressure which lasted until the close in New York. NZDUSD tracked AUDUSD lower. Optimism that the US government would avoid a shut-down and that a US tax cut deal would get inked lifted USDJPY from a low in Asia of 112.22 to 113.12 by the close in New York. EURUSD traded with a negative bias in a narrow range. Eurozone Q3 GDP was unchanged and therefore ignored. GBPUSD was bid the entire day on rumours and headlines that Prime Minister May and the DUP would agree on Irish border concerns. Oil rallied because of supply disruption worries from Nigeria. Gold prices dropped 0.6% while Bitcoin soared to just under $16,000.

Friday, US Congress passes the spending bill, averting government shutdown. US nonfarm payrolls were higher than forecast but not high enough to impress FX traders. The initial US dollar strength faded and the greenback drifted back to pre-data levels.

– Edited by Clare MacCarthy


Christmas comes early for loonie bulls 1Dec17

Christmas comes early for loonie bulls

Michael O’Neill

FX Trade Strategist /



· White House is "Dysfunction Junction" as Mike Flynn charged with lying to FBI

· Blow-out Canadian economic data sends loonie soaring

· A US government shutdown is looming (again)

Canada has had an unexpectedly strong rise in jobs. Pic: Shutterstock

By Michael O’Neill

If you were a Canadian dollar bull, Christmas wasn’t just early it was today. FX markets were looking for Canada to add 10,000 new jobs in November. Instead, Statistics Canada reported 79,500 new jobs, which included 40,600 full-time jobs. The unemployment rate dropped to 5.9%, a nine-year low.

The icing on the cake came when September GDP rose 0.2%, beating the 0.1% forecast.

Today’s data reopened the door to the prospect of a Bank of Canada rate hike next week or in January.

The steep plunge in USDCAD, from 1.2885 to 1.2743, was exacerbated by stop-loss selling following the break of support at 1.2860 and 1.2810.

Canadian dollar pros

1) Steady to firming oil prices supported by Opec’s production cut extension, which now includes Libya and Nigeria.

2) Improving economic data and more resilient than expected economic growth.

3) Risk of BoC rate hike in January.

Canadian dollar cons

1) Canadian inflation remains below the BoC’s targeted level, diminishing the argument for a rate increase.

2) On-going concerns about high mortgage and household debt vulnerabilities

3) Possible shock to the economy with Ontario’s minimum wage hike to $14.00 beginning January 1, 2018, and $15.00 on January 1, 2019.

4) The risk that the NAFTA negotiations implode and President Trump tears up the agreement.

Bank of Canada Governor Stephen Poloz recently reminded markets about “uncertainties” and the need to be cautious. Arguably, the BoC will be slow to pull the trigger on a rate hike, until he has a better handle on how the NAFTA negotiations will pan out.

The intraday and short-term USDCAD technicals are bearish following the break of support at 1.2610 and are looking for a move below 1.2740 for a test of 1.2710 However, the uptrend line from September 7 is intact while prices are above 1.2720. Unless it breaks, decisively, USDCAD will bounce in a 1.2710-1.2910 range.

Chart: USDCAD daily

Source: Saxo Bank

The week ahead

In addition to the scheduled events, and data releases, markets may get distracted by the Trump Administration’s game of musical chairs. This week, will Secretary of State Rex Tillerson find a seat when the music stops? The New York Times says “no,” predicting CIA Director Mike Pompeo gets the chair.

Major Events

Tuesday, the Reserve Bank of Australia interest rate decision and policy statement is due, and rates will be left unchanged. A dovish statement would knock AUDUSD off its perch and concerns about weak wage growth would do the trick.

Wednesday, the Bank of Canada meeting is in focus. Rates are expected to be unchanged. The policy statement will be on the dovish side, in part because of NAFTA concerns.

Friday, the US government can be “shutdown” if Congress doesn’t pass a funding bill.

Major Data

Monday: UK PMI-construction. (Forecast 51.0 vs previous 50.8) Firm data will keep the “soft” Brexit rally going. Eurozone Services PMI and Retail Sales may not be enough to push EURUSD above 1.1965 resistance.

Tuesday, UK Services PMI data will compete with Eurozone Retail Sales, and PMI reports for attention. None of the reports are game changers.

Wednesday, Australia GDP is expected to rise 0.7%, q/q vs 0.6% previously.

Thursday, Eurozone GDP is forecast to show a 0.6% rise, q/q

Friday, The US nonfarm payrolls report is expected to post a gain of 185,000 jobs and an unemployment rate of 4.2%. Elsewhere, China trade data will be the key focus in Asia. GBPUSD traders will be busy with Trade, Manufacturing, and Industrial Production reports.

The week that was

Monday, Asia FX markets were nervous ahead of events later in the week which included; the US Republican tax reform debate, confirmation hearings for Fed Chair nominee Jerome Powell, Janet Yellen’s speech to the Joint Economic Committee and German politics. Traders bought dollars. New York finished the day with gains all around except for USDJPY and NZDUSD. Wall Street closed flat and oil prices fell 1%.

Tuesday, Asia was quiet. NZDUSD gained ahead of Wednesday’s RBNZ Financial Stability Review. USDJPY firmed while EURUSD and GBPUSD drifted lower in Europe. The US dollar was mildly bid at the New York open. US Consumer Confidence gave the greenback a boost. Fed Chair nominee Jerome Powell’s confirmation hearings didn’t have much impact. USDJPY was extra choppy thanks to a North Korea missile test. Sterling reversed morning losses and rallied from 1.3222 to 1.3386. The Daily Telegraph reported that Britain was willing to pay €50 billion to the EU, for Brexit. Oil prices were supported by talk that Opec would announce a production cut extension for all of 2018.

Wednesday, Asia markets quickly dismissed concerns after the North Korea missile test. USDJPY traded in a narrow 111.38-111.65 range, and the antipodean currencies were mixed. AUDUSD ticked lower while NZDUSD inched higher. Sterling extended the New York rally, and prices hit 1.3429 before consolidating. EURUSD was rangebound but with a modest bid tone because of a high Economic Sentiment Index reading. US GDP beat forecasts and gave the greenback a boost. Fed Chair Yellen delivered an upbeat economic assessment. Gold prices were hammered, falling from $1,294.73 at the open to $1,285.35 at the close. The day and month ended with EURUSD being the best performing currency in November. NZDUSD was the worst.

Chart: Currency gain or loss vs the US dollar in November

Source: IFXA/Saxo Bank

Thursday, the US dollar was in demand in Asia, underpinned by rising expectations of a tax reform deal and by Fed Chair Yellen’s testimony. Better than expected domestic and China PMI data lifted AUDUSD, while NZDUSD remained under pressure. USDJPY rallied from 111.90 to 112.46 as Treasury yields climbed. Eurozone inflation data disappointed and EURUSD slipped. Sterling consolidated earlier gains. In New York, portfolio rebalancing flows overwhelmed positive sentiment from robust US economic reports and tax-reform. Good sized month-end US dollar selling boosted the major currencies except for the Japanese yen. The Canadian and New Zealand dollar’s finished unchanged on the day. Wall Street soared. The Dow rose 1.3% to close at 24,272.35.

Friday, was the Lonnie’s day to shine. It did. Trading in the rest of the majors was subdued.

– Edited by Clare MacCarthy