Loonieviews weekly 20Apr18


ARTICLE / 4 hours ago

FX traders blindsided by bankers waxing dovish

Michael O’Neill

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

Canada

· Canada inflation miss knocks loonie for a loop

· ECB and BoJ meetings are the key focus next week

· Oil prices soar on talk of production cut extension

BoE governor Mark Carney downplayed a May hike and sterling slumped. Images: Shutterstock

By Michael O’Neill

Canadian music legend Gordon Lightfoot sang “

in 1998. FX traders were singing a similar tune this week, although their lyrics may have contained expletives.

Bank of Canada Governor Stephen Poloz got the ball rolling on Wednesday. Many FX traders believed the tone to the BoC statement and press conference leaned toward dovish because of concerns that “export growth and investment were held back by competitiveness challenges and trade uncertainty". USDCAD, which had probed support at 1.2550, roared higher and touched 1.2682 on Friday morning in Europe.

Former BoC governor and current Bank of England Governor Mark Carney may have read the text of the BoC policy statement and Monetary Policy Report. On Thursday, April 19, he blindsided sterling traders when he appeared to downplay the chances for a rate increase in May. GBPUSD collapsed from 1.4248 to 1.4038 on the news.

Arguably, the USDCAD rally and the GBPUSD plunge were more a factor of positioning, rather than a wholesale shift in medium-term sentiment. Both central bankers merely stated the obvious; that ongoing trade issues have played a role in lower investments. Central bankers are paid to see the cloud while others focus on the silver lining.

Poloz and Carney reiterated that interest rates were going higher, suggesting that both currency moves may be buying opportunities.

USDCAD reversed early morning gains on Friday and climbed to 1.2717 from 1.2625 after Canadian monthly inflation data was a tick lower than forecast. The year over year data was 2.3% in March following a 2.2%, y/y increase in February. Stats Canada says “This was the largest year-over-year increase since October 2014.”

Chart: change in Canada CPI

Source: StatisticsCanada

The USDCAD downtrend is intact while prices are below the 1.2720-30 area. A move below intraday support at 1.2660 would suggest a period of 1.2530-1.2730 consolidation.

Chart: USDCAD daily

Source: Saxo Bank

The week ahead

It is a short week for Australians and New Zealander s who have Wednesday, April 25, off for ANZAC Day.

Major Events:

European Central Bank meeting Thursday, April 26. FX traders will be looking for guidance on the end of QE.

Bank of Japan Policy meeting Friday, April 27

Major Data:

Monday is purchasing managers index day with reports from Japan, Germany, the Eurozone, and the US. Eurozone data may continue the recent trend of soft economic reports.

Tuesday: Australia Q1 CPI. The Reserve Bank of Australia is on hold for the foreseeable future, suggesting the impact from this data, if any, will be fleeting.

Thursday: US March durable goods orders (forecast 1.0% vs February 3.1%)

Friday. It may be a busy Asia session with New Zealand Ttade data, Australia PPI and Japan CPI, employment report, large retailers sales and industrial production data ahead of the Bank of Japan meeting.

UK Q1 GDP (forecast 0.4%) may be affected by the weather. A weaker than expected report would support Mark Carney’s comments suggesting a May rate increase is far from a “done deal.”

US Q1 GDP (Forecast 2.3% vs previous 2.9%) is thought to be affected by poor weather and late tax refunds.

The week that was:

The US, France, and the UK fired missiles at three Syrian targets on the weekend which could have led to a nasty start to trading. It didn’t happen.

Monday: Asia FX markets were relatively quiet and rangebound. The underwhelming response by Russia to the Syria attack (they called an emergency NATO Security Council meeting) sparked a whiff of positive market sentiment. However, a lack economic news in Europe and Asia limited currency moves. The US data, including retail sales, was mildly disappointing and combined with a more upbeat tone to global trade, led to broad but limited US dollar selling. The greenback finished the session with losses across the board compared to Friday’s closing levels.

Tuesday: FX markets were choppy but rangebound in Asia. Things changed in Europe after a couple of weak economic reports. Sterling got spanked after the UK employment report was not as robust as expected. GBPUSD dropped from 1.4374 to 1.4307 on the news. EURUSD fell to 1.2365 from 1.2411 when German and Eurozone ZEW sentiment surveys were below forecasts. USDCHF rallied following weekend comments by the Swiss National Bank Chair Jordan. Better-than-expected, but second-tier USD data added to US dollar demand but briefly. The greenback finished the day on a mixed note. Wall Street rallied and closed with gains.

Wednesday: The antipodean currencies traded sideways in Asia while USDJPY had a bit of a pop to it rising from 107.00-107.40. The range gradually narrowed until the New York close. Japanese Trade data didn’t have any impact. Sterling got clobbered in Europe after a series of weak UK economic reports including weaker than expected inflation data. GBPUSD dropped from 1.4313 to 1.4174. EURUSD dropped, but not as dramatically, after soft German and Eurozone ZEW reports. Both currency pairs rebounded in New York, but the rally was shallow. The Bank of Canada left rates unchanged and issued what some believe was a dovish statement. USDCAD soared from 1.2550 to 1.2557. Oil prices climbed from the Asia low of $66.58 to $68.88. A decline in US crude inventories and a report that Saudi Arabia wanted to see oil at $100/barrel powered the move.

Thursday. FX markets in Asia and Europe were sleepy, although New Zealand inflation data and the Australian employment data caused a brief stir. USDJPY continued to look for direction while drifting in a 107.00-50 range. There wasn’t any top-tier Eurozone data, which left EURUSD rangebound. A disappointing UK retail sales report led to a short-lived bout of GBPUSD weakness, as poor weather may have hurt the results. The US dollar roared to life in New York. Falling commodity prices and the outlook for higher US rates drove commodity prices lower. Sterling crashed when Bank of England Governor Mark Carney appeared to dismiss the prospect of a May rate hike. Oil prices gave back earlier gains, and Wall Street closed with small losses.

Friday: USDJPY finally cracked above resistance at 107.50 helped by firm Treasury yields and broad US dollar strength. The US dollar closed the week with strong gains as traders turn their focus to the US economic growth and higher interest rate outlook.

– Edited by Clare MacCarthy

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Loonieviews weekly 13Apr18


Trade war fog lifts and commodity currencies rise

Michael O’Neill

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

Canada

·

· USDCAD downside has further to go

· Headlines and Twitter drove FX direction last week

· President Trump flip-flopping on trade

For the loonie, the direction seems higher. Pic: Shutterstock

By Michael O’Neill

The Bank of Canada is in the spotlight on Wednesday. The quarterly Monetary Policy Review, monetary policy statement and the governor’s press conference are due, and this time, they won’t be constrained by trade worries.

The BoC last raised interest rates in January, a hawkish move, and in the accompanying policy statement they justified the move because of strong data, rising inflation and said the economy was operating roughly at capacity. However, they complained that uncertainty around the North America Free Trade Agreement (Nafta) clouded their outlook. The rate hike was considered dovish, and the Canadian dollar was sold.

The March policy meeting reiterated Nafta concerns but included uncertainty about global trade as well. That statement was deemed dovish, and the Canadian dollar was sold.

Just as winter has changed into spring, Nafta and global trade concerns have changed from fear to hope. President Trump, the architect of most of the trade uncertainty, has flip-flopped. One week he is levying tariffs on steel, aluminium and $100 billion worth of Chinese imports and the next, he is issuing exemptions and delays. On Thursday, April 12, the president told Republicans that the US and China were negotiating and may be able to avoid a trade war.

Last week, there were many reports Trump was demanding an “outline to a Nafta agreement” be ready to sign at this week’s Summit of the Americas in Peru. That didn’t happen, but on April 12, Trump told Republican representatives that “We’re getting close on Nafta”. It could be two weeks; it could be three months, it could be five months, I don’t care. I have no timeline.” CBC news reports that the American’s have reduced their auto parts demand to 75% North American content, down from 85%

The improved outlook for Nafta and global trade reduces uncertainties for the Bank of Canada, suggesting monetary policy doesn’t need to be restrained. April 18 may be too soon to raise interest rates, but not too soon for a hawkish policy statement. If so, USDCAD support at 1.2450 is a likely target.

Chart: USDCAD 4-hour

Source: Saxo Bank

The week ahead:

Monday: US March Retail Sales (forecast 0.3%, ex-autos forecast 0.3%, m/m) are expected to beat the February numbers and underpin the dollar.

Tuesday: The Reserve Bank of Australia policy meeting minutes from the April 3 meeting should be a non-event as Australian interest rates aren’t going anywhere for a long while.

China Q1 GDP is forecast to rise 6.8% which should support the antipodean currencies.

UK unemployment rate is forecast to dip to 4.1% from 4.3% with average earnings excluding bonus (3 months, y/y) rising to 2.9% from 2.6%.

Wednesday: UK Retail Price Index, DCLG Home Price Index, PPI and CPI will ensure a lively day for GBPUSD traders. Eurozone inflation for March (Forecast 1.4%, y/y, Core O.9%)

The Bank of Canada Policy meeting, Monetary Policy Report and Press Conference will be key for USDDCAD. The improved tone to the Nafta talks suggests a hawkish policy statement, although rates will be left unchanged.

Thursday: New Zealand CPI (forecast 0.5% q/q vs previous 0.1%). Westpac economists suggest the recent inflation dip is due to technical issues. Australia March employment gains are expected to rise by 31,500 (February Actual 17,500) and the unemployment rate to drop to 5.4% from February’s 5.6% level. UK Retail Sales (forecast 1.1%, vs February 1.5%, y/y)

Friday: Canada February Retail Sales (0.1% vs January 0.3%, m/m) as the data is stale and too close to BoC statement. Core CPI is expected to be unchanged at 1.5%.

The week that was:

Monday: The US dollar posted small gains in Asia and Europe in an uneventful session. Trades war fears abated after President Trump tweeted about his friendship with President Xi Jinping and National Economic Advisor Kudrow telling Fox News “I don’t think there is any trade war in sight.” North Korea got into the act when they reportedly said they were open to talks about nukes. The US dollar lost ground throughout the New York session. Sterling held on to gains from upbeat housing data and expectations for higher UK rates. USDCAD dropped after an upbeat Bank of Canada Quarterly Business Outlook Survey. Wall Street erased nearly all of the day’s gains in the last hour of trading after news that the FBI raided the offices of Trump’s lawyer. Oil prices climbed on fears that rising Middle East tension would impact supply.

Tuesday: Chinese President Jinping, remarking about the trade dispute with the US, said dialogue was the best way to resolve disputes. His decision not to escalate trade frictions improved risk sentiment. The US dollar opened in New York with small losses except against the Japanese yen. The trend continued until the end of the day with only the Japanese yen finishing on a down note. Oil prices rallied supported by continued Middle East tensions and hopes of increased demand. Wall Street rallied due to the downgraded trade risks.

Wednesday: The brakes were applied to the dollar’s slide in Asia and Europe. Traders were content to await the release of the US inflation report and FOMC minutes. March CPI was lower than expected which caused a brief and limited US dollar sell-off. Then President Trump hit send on his Twitter account. He railed at Russia for threatening to shoot down US missiles with a missile threat of his own. He tweeted again and blamed Democrats for his Russia issues. The FOMC minutes gave the greenback a bit of a bid as they were determined to be “hawkish.” Oil prices continued to rise touching $66.78/barrel after Yemeni rebels launched missiles at Riyadh and Saudi oil storage facilities. None landed. Wall Street finished almost flat for the day.

Thursday: The Asia and European sessions were low-key. Australia data wasn’t strong enough for AUDUSD to break resistance in the 0.7780-00 zone. NZDUSD was underpinned by comments from RBNZ Deputy Governor McDermott but stayed in a tight range. USDJPY was supported by BoJ Governor Kuroda promising to maintain stimulus. New York opened with a tweet from Trump downplaying the risk of a retaliatory strike on Syria. The New York FX session was noisy, but when the day ended, prices were little changed from the open. The outlook for global trade took a turn for the better after Trump said that negotiations with China were going well. He also said he would revisit the TransPacific Partnership and that the Nafta negotiations were going well.

Friday: USDJPY, AUDUSD and GBPUSD extended overnight gains in early New York trading. The rest of the G10 majors are close to flat in an uneventful Friday session.

– Edited by Clare MacCarthy

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6Apr18 Loonieviews Weekly


Next on the agenda? Making Nafta great again

Michael O’Neill

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

Canada

·

· Weak US jobs data may be weather-related

· Loonie rallies on Nafta optimism and a strong employment report

· Upcoming ECB meeting may underpin EURUSD

In Trump’s optic, making America great again involves squashing free trade.

Pic: Brian Kenney / Shutterstock.com

By Michael O’Neill

The “worst deal ever” is not quite “beautiful, great, incredible, huge" or any other of President Trump ’s favourite superlatives, but Nafta is fast becoming a priority.

On April 2, media reports quoting “sources with knowledge” said the president was pushing to have an “outline” of a Nafta agreement signed any ready to be announced at the summit of the America’s in Peru on April 13 and 14. Those reports received extra credence on April 5 after news that the eighth round of formal Nafta talks was delayed because of a series of high-level meetings in Washington.

That news and Friday’s US and Canadian employment reports bode well for USDCAD bears. Nonfarm payrolls (NFP) did not live up to expectations, and the Canadian report exceeded them. The weaker than expected NFP (Actual 103,000 vs forecast 190,000) undermined the US dollar, but the impact was marginal. Poor weather at the beginning of March, may have skewed the data.

Canada added 32,300 new jobs, all of them full-time. It may even kick-start a new dialogue about the timing of the next Bank of Canada rate increase. The increased odds for a successful trade deal renegotiation will remove the cloud of uncertainty from the Bank of Canada’s outlook. The employment data shows the Canadian economy is humming along, nicely. It may be too soon for a rate hike at the April 18, meeting, but the May 30th meeting should be wide open.

All of the above and bearish short-term USDCAD technicals target further losses towards 1.2500 in the coming days. USDCAD broke below 1.2793 (38.2% Fibonacci retracement of February-March range) which has put a target on the 61.8% retracement level of 1.2589.

Chart: USDCAD daily with Fibonacci retracement levels.

Source: Saxo Bank

The week ahead

Mario Draghi and the European Central Bank (ECB)headline a relatively benign week, data-wise. Trade talks and presidential tweets are the wild cards.

Monday: The Bank of Canada Business Outlook Survey does not usually attract a lot of attention from FX traders. This one could be different considering the recent shift in tone to Nafta talks.

Tuesday: New Zealand Business Confidence data could lift NZDUSD. Economist expect a positive jump from the previous report due to improved data

Wednesday: Westpac Consumer Confidence may underwhelm due to recent trade war jitters. There is a lot of second and third tier UK data which will entertain GBPUSD traders. The US inflation report is the main attraction with energy prices having a negative impact. Nevertheless, calculation methodology may lead to a rise in the Core data.

Thursday: Australia February Home Loans data is expected to show a small improvement. (Forecast -0.6 vs January -1.1%) The ECB policy meeting and press conference will underpin EURUSD on the days leading up to it. Traders will be looking for more clues as to the timing of policy normalization.

Friday: China trade data will get extra scrutiny thanks to the ongoing trade spat. Eurozone data will have minimal impact as it follows the ECB meeting.

The week that was:

It may have been a short week in many markets, but there was no shortage of volatility and drama, especially on Wall Street.

Monday: Australia and New Zealand markets were closed for Easter Monday, but AUDUSD managed to trade lower after weaker than expected Caixin China Manufacturing Index dipped to 51.0 from 51.6, previously. The European and UK sessions were deathly dull due to Easter Holidays. Canada was partially closed. Wall Street tanked. A series of Trump tweets about Amazon and China’s announcement of tariffs on $3 billion worth of US food imports, spooked traders. WTI oil prices finished 3.0% lower. Only the Japanese yen finished the day with a gain.

Tuesday: The day started wobbly. Asia equity markets followed US markets lower, but the move didn’t last. The Reserve Bank of Australia didn’t do anything to disturb the market. USDJPY bottomed early and climbed steadily into the New York open. Sterling inched higher supported by a forecast-beating Manufacturing PMI report. New York FX trading was subdued. However, USDCAD plunged on news that President Trump was pushing for an “outline” of a Nafta agreement the following week, to be announced in Peru. Wall Street recouped most of Monday’s losses, helped by a report that the Trump administration didn’t have plans to go after Amazon.

Wednesday: Risk aversion was the “soup du jour.” China launched new tariffs on about $50 billion of US imports and markets feared a trade war had just begun. The Japanese yen and Swiss franc were in demand although the FX moves were understated. Gold rallied from $1,332.95 to $1,348.24 by breakfast time in New York. Wall Street sank but then reversed course after National Economic Council Director Larry Kudrow suggested the tit-for-tat tariff exchange was just negotiating tactics. Oil traders liked the news and WTI rose 1.9%. Both the Swiss franc and yen finished down on the day.

Thursday: Trade war nerves were soothed, and traders shifted their focus to Friday’s US employment report. USDJPY climbed steadily supported by higher Treasury yields. AUDUSD enjoyed a short-lived rally to 0.7725 after posting a larger than forecast trade surplus, but pre-payrolls positioning drove prices down to 0.7680 by the New York close. Soft UK services PMI put GBPUSD under pressure until the New York afternoon, when it clawed back some of the losses. Less-than impressive Eurozone data and the outlook for a robust NFP number drove EURUSD down. Wall Street gained in a somewhat reluctant manner after a weak start to the day. The US dollar closed in New York with gains all around, except against the Canadian dollar.

Friday, Asia markets were roiled at the start following a Trump threat to levy tariffs on another $100 billion worth of China imports. The quickly calmed down and look ahead to the US employment data. NFP disappointed but the miss may have been weather-related.

– Edited by Clare MacCarthy

Michael O’Neillis an FX consultant at IFXA Ltd

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