Aim! Fire! Why media focus on FX price rigging misses the target


FX Price Rigging-The Fix Ain’t in

Bloomberg posted a story last night ( Currency Spikes at 4pm in London Provide Rigging Clues) alluding to price fixing by foreign exchange traders around the month end 4 pm London close ( in Canada, it is known as the 11:00 am fix) implying that the pattern is similar to the Libor price fixing scandal.  I call “Bogus”!

I have been an active participant from both the sales and execution sides of these transactions while working for leading global banks and I can say from experience that this story is merely an attempt to create a controversy where none exists.

The month end London close (for book keeping purposes, determined to be 4 pm) is when the WM/Reuters rates for 160 currencies are published.  According to the Bloomberg story, the methodology is that the prices for the 21 most active currencies are derived from an average of all transactions for one minute, beginning 30 seconds before the hour.

The reason that this is important is that many fund managers all over the world use these rates to “close their books”  at month, quarter and year end.  Portfolio’s are rebalanced as FX price fluctuations during the period can result in a portfolio manager being under or overweight a currency, necessitating an FX trade to bring the portfolio bank into line with their internal parameters.

What makes it interesting is that there are literally thousands of portfolio managers in this position resulting in some very large, market moving rebalancing trades.  The Bloomberg story begins with what they insinuate is an example of a currency manipulation trade in the Canadian dollar, on the last Friday in June.

I am pretty sure that they are wrong based on over 20 years of executing the fix transactions and working directly with some of the biggest portfolio managers in the business.  The trading around the “fix” is less an example of price fixing but more of an example of profit preservation in what is a pure supply and demand environment.  The following is a simplistic example of a typical fixing trade using USDCAD.

For the rest of the article please go to Saxo Banks’s Trading Floor

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IS THE LOONIE HEADING SOUTH?


The loonie appears to be heading south and not just because of the frosty temperatures across the land. In fact, a decisive break above the 1.0230-50 zone would terminate the  long term USD/CAD downtrend channel, intact since September 2009. exposing 1.1220 which is the 50% fibo retracement of the 2009-20013 range of 0.9370-1.1.3040.

Far-fetched=perhaps, but there are a number of factors/events etc that suggests that the loonie has seen its best days for the foreseeable future.

1) There is a school of thought that suggests that global investors are shifting away from the long term safe haven/yield play following the financial meltdown with the improving outlook for Europe and the USA, leading to an unwinding of long CAD$ positions.

2)The latest FOMC minutes suggest that the QE program will end sooner rather than later which will lead toUS dollar demand, undermining the loonie.

3) The sluggish Canadian economy has crushed any hopes of a near term rate hike in Canada. Canadian Budget and trade surpluses have turned negative, eliminating two previously bullish CAD$ factors.

4)The Canadian dollar doesn’t appear to be deriving any more benefit from oil prices in the $85-105 range and the drop in gold prices appears to be another negative CAD$ factor.

However, resistance in the 1.0230-50 zone should be significant and a failure to break through will likely result in a prolonged period of 0.9980-1.0250 consolidation.

LoonieViews July 25, 2012


LoonieViews
July 25, 2012
USD/CAD Open 1.0185-90 Overnight Range 1.0175-1.0230The Canadian dollar stayed soft in Asia and rallied in Europe in line with the trading patterns of the other G-7 currencies. The Asian session continued the negative bias from yesterday however the Euro zone session was the exact opposite. The combination of thin markets and dubious Euro zone headlines led to a round of profit taking as the US dollar was sold. An ECB policy member opined about converting the ESM (European Stability Mechanism) into a bank, leading to traders buying EUR on the perception of the possibility of increased firepower to support troubled sovereigns. ECB President Draghi reportedly said that such a move was illegal on May 24. Meanwhile, European equity indices rose and NY equity futures are in the green. WTI oil is $88.56 and gold is $1,590.53. There isn’t any data of note from Canada or the USA.

The short term USD/CAD technicals are mixed. The medium term USD/CAD trend is bearish as evidenced by the downtrend channel (channel parameters are 1.0020 and 1.0240) on the daily chart below. For today, USD support is at 1.0170 and 1.0140. Resistance is at 1.0200, and 1.0220.

The Canadian dollar will continue to be supported by expectations of demand from the CNOOC/Nexxen deal. If you have any doubt about the possible impact of a conversion of this magnitude, look back to Oct.-Nov.07 and review the result of the ALCOA/Alcan deal. History does repeat itself.

And in other news, Premier McGuinty denied additional funds for Toronto to combat guns and gangs because he spent the money to buy votes in troubled Liberal ridings.

Today’s Range 1.0160-1.0210

Michael O’NeillLoonieViews

LoonieViews July 23, 2012


LoonieViews
July 23, 2012
USD/CAD Open 1.0161-66 Overnight Range 1.0130-70

The Canadian dollar continued to slide overnight on safe-haven demand for US dollars, driven by the perception that Spain is going the way of Greece and heightened tensions in the Middle East. The EUR/USD is touching levels not seen for 10 years and forecasts are for more weakness to come. Global equity indices including NY equity futures are lower. Commodity prices have retreated; WTI Oil is $89.18 (down $2.60) and Gold is $1,572.15 (down $12.26) There is not much in the way of data today.

The short term USD/CAD technicals are bullish US dollars, looking for a break through 1.0170 to extend gains to 1.0205 and then 1.0240. However, a move back through 1.0125 will negate the USD uptrend a see a return to 1.0060-1.0160 consolidation. For today, USD support is at 1.0145, 1.0120 and 1.0080. Resistance is at 1.0070, 1.0205 and 1.0240.

CNOOC has announced an all cash bid of CAD $15.1 billion for Calgary’s Nexxen Energy, a 61% premium over Friday’s price, according to Bloomberg. This news is enough to put a cap on US$ strength in the 1.0200-40 area while the details get finalized. The loonie will even grind out some gains in anticipation of demand if traders start to believe that the Canadian government will approve the transaction.

And in other news, Americans are shocked and devastated over the Colorado Massacre at a Batman movie. In the USA, Fireworks availability is strictly controlled, but military grade assault rifles and ammunition are available 24 hours a day.

Today’s Range 1.0110-1.0210

Michael O’Neill

LoonieViews

LoonieViews July 20, 2012


LoonieViews
July 20, 2012
USD/CAD Open 1.0082-87 Overnight Range 1.0069-1.0090

The Canadian dollar traded quietly overnight, trading with a slightly negative bias as equity investors took profit ahead of the weekend. Middle East tensions are driving WTI oil higher ($91.56) while European finance ministers hold conference calls to finalize $100 billion EUR payment to Spain. Global equity indices are all down including NY equity futures. Today’s Canadian economic data releases include CPI (Forecast June -0.2% MoM, Core -0.1%) and nothing from the US

The short term USD/CAD technicals are bearish US dollars, however USD support between 1.0075 (100 day moving average) and 1.0050 (61.8%Fibo support) has stymied CAD$ upside. For Today, USD support is at 1.0050 and 1.0010. Resistance is at 1.0090 and 1.0140

A lack of US data, increased Middle East tensions and the looming weekend suggest today’s activity will be biased towards profit taking and diminish early as people try to get an early start to the weekend.

And in other news, a slice of toast left over from Prince Charles’s breakfast on his wedding day to Princess Diana in 1981 sold at auction for 230 pounds. Former government minister, Bev Oda is really irked as she caught a ton of flack for spending a mere $15 on a glass of orange juice.

Today’s Range 1.0010-1.0110

Michael O’Neill

LoonieViews

LoonieViews July 20, 2012


LoonieViews
July 20, 2012
USD/CAD Open 1.0082-87 Overnight Range 1.0069-1.0090

The Canadian dollar traded quietly overnight, trading with a slightly negative bias as equity investors took profit ahead of the weekend. Middle East tensions are driving WTI oil higher ($91.56) while European finance ministers hold conference calls to finalize $100 billion EUR payment to Spain. Global equity indices are all down including NY equity futures. Today’s Canadian economic data releases include CPI (Forecast June -0.2% MoM, Core -0.1%) and nothing from the US

The short term USD/CAD technicals are bearish US dollars, however USD support between 1.0075 (100 day moving average) and 1.0050 (61.8%Fibo support) has stymied CAD$ upside. For Today, USD support is at 1.0050 and 1.0010. Resistance is at 1.0090 and 1.0140

A lack of US data, increased Middle East tensions and the looming weekend suggest today’s activity will be biased towards profit taking and diminish early as people try to get an early start to the weekend.

And in other news, a slice of toast left over from Prince Charles’s breakfast on his wedding day to Princess Diana in 1981 sold at auction for 230 pounds. Former government minister, Bev Oda is really irked as she caught a ton of flack for spending a mere $15 on a glass of orange juice.

Today’s Range 1.0010-1.0110

Michael O’Neill

LoonieViews

LoonieViews July 19, 2012


LoonieViews
July 19, 2012
USD/CAD Open 1.0073-78 Overnight Range 1.0073-1.0107

The Canadian dollar moved higher overnight buoyed by rising oil prices (WTI $90.86) and rising global equity indices due to questionable optimism towards lower global interest rates. Oil prices appear to have been given a boost on news that US gasoline stockpiles shrank but instability in the Middle East and ever increasing tensions over the Straits of Hormuz probably have more to do with it. US data releases include; Jobless Claims (365K), Retail Sales (4.8%) Existing Home Sales (1.5%, MoM) and Leading indicators.

The short term USD/CAD technicals are bearish US dollars The break of the 200 day moving average (1.0105) led to a quick test of the 100 day moving average (1.0073) which is guarding Fibo support at 1.0050. (represents the 61.8% retracement of the 0.9800-1.0445 range intact since April 30, 2012. A decisive break of 1.0050 will lead to a return to 0.9800. For today, USD support is here at 1.0070, 1.0050 and 1.0010. Resistance is at 1.0080, 1.0110 and 1.0140

The loonie has benefitted from the perception derived from the BoC’s Monetary Policy Review where they indicated, in their obfuscating manner, that although Central Banks around the world were cutting interest rates, it wouldn’t happen in Canada. Furthermore, the optimistic outlook surrounding today’s US data which points to an improving US economy, has led to increased demand for CAD$ against the majors.

And in other news, a former enforcer for the Colorado Avalanche, Scott Parker, has taken the time out to explain to hockey fans why the 2004 on ice assault by Vancouver’s Todd Bertuzzi against Colorado’s Dominic Moore was justified. (Moore never played another game). Parker claims that “Moore went to Harvard, you know” College Grad”! He never explained if things would have been different if Moore had merely attended a community college.

Today’s Range 1.0010-1.0110

Michael O’Neill

LoonieViews