USD/CAD near 2 week lows ahead of employment data re-print

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Market Snapshot (near-term 48 hour outlook)
USD/CAD: Bearish. Spot at 1.0888
EUR/CAD: Bearish. Spot at 1.4571
GBP/CAD: Bearish. Spot at 1.8182
EUR/USD: Neutral. Spot at 1.3382
GBP/USD: Neutral. Spot at 1.6696
Today’s Commentary
USD/CAD Commentary

The Canadian dollar firmed against its U.S. counterpart yesterday, with the greenback under some pressure after data showed the number of Americans filing new unemployment benefits rose more than expected last week.

The U.S. jobless claims data followed unexpectedly flat U.S. retail sales figures on Wednesday, which came in with the weakest reading since January.

With little domestic economic news to drive it, the Canadian dollar has been taking its cues from south of the border.

"We have generally had a weaker U.S. dollar, which is largely behind the story on what we’ve seen on Canada," said Mark Chandler, head of Canadian fixed income and currency strategy at Royal Bank of Canada. The Canadian dollar, which was underperforming other major currencies yesterday and closed the trading day at 1.0903 to the U.S. dollar. That was stronger than Wednesday’s close of C$1.0917.

Traders are remaining cautious ahead of today’s restatement of Canada’s July jobs data. Statistics Canada said the original report, released last Friday, which showed the economy added just 200 jobs last month, contained an error and must be restated.

"When (the error) was first announced, you did get a slight increase in the Canadian dollar and also a similar movement in bond markets," Chandler said. "Essentially all we did was rewind, in some sense, the reaction to when (the jobs data) first came out." On average, economists had expected 20,000 new jobs in July.

Investors will also eye other Canadian data for direction, including existing home sales, and manufacturing sales, which are expected to increase 0.4 percent.

Canadian government bond prices were higher across the maturity curve, with the two-year up 1.5 Canadian cents to yield 1.062 percent, and the benchmark 10-year climbing 16 Canadian cents to yield 2.058 percent.

Short term technicals continue to remain bullish however continues to remain in a tight August range of 109 points. The pair should trade on either side of the 1.100 psychological level in the near term.

Today’s expected trading range is 1.0825 – 1.0950

EUR/USD Commentary

The EUR/USD traded lower yesterday and closed at 1.3365 after a slew of mixed data and a complicated ECB monthly report. Euro zone inflation will be weaker than previously expected this year and next, an updated survey for the European Central Bank indicated yesterday, darkening the euro zone’s economic outlook.

The survey raises fresh questions about the ECB’s threshold for embarking on a policy of quantitative easing (QE) – essentially, printing money to buy assets. ECB President Mario Draghi told his monthly news conference that the bank’s policymaking Governing Council was “unanimous in its commitment” to use measures including QE if its medium-term outlook for inflation were to change.

Draghi also cited “heightened geopolitical risks” related to the impact on the euro zone economy from the Ukraine crisis.

Yesterday’s data releases make the September 4th ECB meeting particularly relevant for the EUR with most analysts continuing to expect further weakness in the euro toward the low 1.30’s as we approach the year end.

Short term technicals continue to remain bearish with the next key level at 1.3333 while resistance is located at 1.3415.

Today’s expected trading range is 1.3350 – 1.3425

GBP/USD Commentary

The GBP/USD broke to its lowest level since mid-April as traders continued to react to signs that Bank of England policymakers were likely to push its first interest rate hike since 2007 well into 2015.

The BoE lowered its growth estimate for U.K. wages to 1.25% for the year, down from 2.5%, or half of the previous estimate; 2015 wage growth estimates were also revised downward. The BoE Governor, Mark Carney, said that the Monetary Policy Committee (MPC) would be placing singular importance on wage growth in the future, but as wage growth related to the timing of an interest rate rise, they had no set threshold as the determinant. The BoE did acknowledge that while overall there was improvement in the U.K. labor market, the weakness in wage growth was a clear indication that there remained some slack in the U.K. economy.

As far as the BoE’s inflation forecast, the 2015 outlook is now calling for inflation to hit 1.7% from the previous estimate of 1.8%, and looking further out to 2016 to fall to 1.8% from the 1.9% initially forecast. For reference, the BoE has an inflation threshold or target of 2%. Given the MPC’s elevated concerns over the amount of slack, however, the MPC is likely to pay particular attention on how wage growth and labor costs might impact inflationary pressures.

GDP and CPI (inflation) data is to be released today and Monday respectively. Although the UK fundamentals continue to look strong, an interest rate rise in 2014 and perhaps even the first quarter of 2015 appears a distant hope at present. Therefore, investors are likely to become more reluctant to purchase the GBPUSD, and a return to the area between 1.67/1.68 seems unlikely anytime soon, let alone the 1.70 highs. Carney’s dovish tone will likely continue to encourage bearish movement in the GBPUSD for the time being, before the pair enters a consolidation stage.

Short term technicals remain bearish with the next support located at 1.6607 while resistance is located at 1.6755.

Today’s expected trading range is 1.6650 -1.6725

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Opening FX Rates (USD)
USD/CAD 1.0888
EUR/USD 1.3382
GBP/USD 1.6692
USD/JPY 102.57
AUD/USD 0.9327
USD/HKD 7.7504
USD/PLN 3.1248
USD/THB 31.85
Opening FX Rates (CAD)
USD/CAD 1.0888
EUR/CAD 1.4571
GBP/CAD 1.8182
CAD/JPY 93.15
AUD/CAD 1.0154
CAD/HKD 7.1164
CAD/PLN 2.8692
CAD/THB 29.24
Opening Commodities (USD)
Oil 95.66
Gold 1311.94
Silver 19.86
Economic and Event Calendar
GBP – Gross Domestic Product Aug 15
CAD – Employment data re-print Aug 15
CAD – Manufacturing Sales Aug 15
USD – Producer Price Index Aug 15
USD – Michigan Consumer Sentiment Aug 15
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