Canadian GDP Report Supports the Loonie

dollar and oil

The loonie turns from 2 weeks low as Canadian GDP print above expectations this morning. BoC Poloz highlighted the damage caused by oils “atrocious” fall in exports revenues and halting energy investments, further economic weakness should be expected as the headlines losses spill down into the broader economy. The US dollar remained supported against the major counterparts but the loonie with better than expected consumer confidence reports this morning, Weak data from eurozone also helped the dollar rally.

Markets are focused on the manufacturing numbers from the North American region due out tomorrow.

The euro weakened amid few signs of progress in talks between Greece and its creditors, while oil fell as Iranian and Western diplomats worked toward a nuclear deal.

The Sterling rose against the dollar this morning from the overnight 1.47 levels after data showed the British economy grew at a faster pace in the fourth quarter of last year than previously estimated.

High volatility expected in all the major currency pairs in the coming days.

Canada braces for a weak GDP print

gdp

Today’s FX Comment

Opening FX Rates Canadian Crosses Opening Commodities (USD)
USD/CAD 1.2766 CAD/USD 0.7833 Oil 47.74
EUR/USD 1.0770 EUR/CAD 1.3746 Gold 1186.80
GBP/USD 1.4799 GBP/CAD 1.8892 Silver 16.67
USD/JPY 119.82 CAD/JPY 93.86
AUD/USD 0.7607 AUD/CAD 0.9704
USD/PLN 3.7922 CAD/PLN 2.9711

Canada braces for a weak GDP print

USD/CAD Comment

The Canadian dollar extended losses against the greenback yesterday as oil prices fell and as investors looked ahead to today’s Gross Domestic Product (GDP) release from Canada.

Investors are bracing for weak economic growth numbers in January for Canada due today as well as weak trade figures for February due on Thursday. Markets will also be taking note of U.S. employment data on Friday.

In a Financial Times interview published on Monday, Bank of Canada Governor Stephen Poloz said the first quarter of 2015 will look “atrocious” because of the oil shock, which saw prices plunge more than 50 percent since last summer.

The market is going to be more focused on data-dependent information, so the GDP will be important factor that will directly impact the current trajectory of the Canadian dollar. Poloz’s comments over the weekend have already set the tone for today’s data print with the Canadian dollar closing at 1.2693 to the U.S. dollar weaker than Friday’s close of C$1.26.

The U.S. dollar gained against a basket of currencies on the view that the Federal Reserve will hike U.S. interest rates this year following comments late on Friday from Fed Chair Janet Yellen.

Earlier in yesterday’s session, U.S. data showed consumer spending rose negligibly in February, the latest sign that the U.S. economy has been experiencing a soft first quarter. Meanwhile, inflation edged higher, but was still below target.

Overall though, underlying U.S. dollar strength continues to remain the general theme of the currency markets.  A softer than expected print on the Canadian GDP numbers today has the potential to dramatically weaken the currency pair to the 1.28’s or higher.

Short term technicals continue to remain bullish for now with the pair trying to break through the 1.2700 decisively and target the 1.28s.

Today’s expected trading range is 1.2675 – 1.2800

EUR/USD Comment

The euro fell on Monday, hurt by uncertainty over whether Greece and its creditors will be able to strike a deal that will help Athens secure funding before it runs out of money by April 20. Fitch cut Greece’s credit rating to ‘CCC’ from ‘B’ on Friday.

The euro got little help from data that showed consumer prices in Germany picking up. Prices are set to rise in March after falling in the first two months of this year, but inflation is still likely to remain low.

This week we expect the currency pair to range trade unless the euro drops below the technical support of 1.0770.  However, with the Fed still looking to raise rates the current environment should remain bias toward overall U.S. dollar strength.

Overall we continue to see the euro weaker against the U.S. dollar.  This Friday’s job numbers will provide short term direction for the currency pair.

Short term technicals are range bound with support located at 1.0770 while resistance comes in at 1.0920.

Today’s expected trading range is 1.0700 – 1.0875

GBP/USD Comment

The GBP lost ground against the U.S. dollar yesterday.  The focus on the upcoming elections is building as the Parliament has been dissolved. Recent polls suggest that neither the Labour party nor the Conservative party have the votes needed to form a majority government.

Though data out of the U.K. has been relatively upbeat and significantly better than most of its G7 peers, we continue to expect the currency to be weighed down by the uncertainty of the upcoming elections in the short term.

Our medium term/long term outlook continues to suggest that the GBP is likely to rebound as the U.K. economy outperforms most of its peers.

Short term technicals continue to remain bearish with the pair now looking to test the 1.47 level.

Today’s expected trading range is 1.4725 – 1.4875

Poloz Warns of NEGATIVE first quarter results; QE may be warranted!

volatility ahead 2

In an interview over the weekend Bank of Canada Stephen Poloz warned that the first quarter of 2015 will look artocious for the Canadian economy as a result of the oil shock.

Poloz already unexpectedly cut interest rates in January thanks to oil’s crash but mentioned that the bank has and will continue to navigate the current environment with a slew of options including so-called forward guidance (a plegde to hold rates low for a long time), asset purchases and also another rate cut.

The good news Poloz said is that the sharp decline in the loonie has seen US investments “starting to fire on all cylinders” and manufacturing is rebounding.

Markets are focused on the Canadian Gross Domestic Product data for January due out tomorrow.  The loonie has a significant risk of weakening further if the printed figures are weaker than the expected 0.2% decline.

The loonie is currently trading at 1.2650 with the pair looking to test the 1.27 level and possibly test higher lows.

Expect a volatile session over the coming days on the USD/CAD.

USD Strong to Start the Week

strong dollar

Today’s Morning Comment

Opening FX Rates Canadian Crosses Opening Commodities (USD)
USD/CAD 1.2637 CAD/USD 0.7913 Oil 48.54
EUR/USD 1.0845 EUR/CAD 1.3711 Gold 1184.76
GBP/USD 1.4801 GBP/CAD 1.8708 Silver 16.71
USD/JPY 119.85 CAD/JPY 94.80
AUD/USD 0.7662 AUD/CAD 0.9681
USD/PLN 3.7685 CAD/PLN 2.9816

USD Strong to Start the Week

USD/CAD Comment

The Canadian dollar lost ground against the greenback on Friday on the back of retreating oil prices and concern that Canadian economic growth data in the coming week could show significant weakness.

Oil fell to below $50/barrel in Friday’s trade after a spike on Thursday following a Saudi led air strike on Yemen. The loonie had risen on Thursday along with oil as a result of the air strikes with market participants concerned over crude supplies in the region.

Investors were also focused on a speech by US Federal Reserve Chair Janet Yellen She said the central bank is giving “serious consideration” to beginning to reduce its accommodative policy and that a rate hike may be warranted later this year, although a downturn in core inflation or wage growth could force it to hold off.

On the Canadian front, Bank of Canada Governor Poloz said last week that the bank’s quarter-point rate cut in January has bought it time to examine the effects of cheaper oil on the economy. The remarks underscored the possibility the central bank will keep interest rates steady next month.

In the week ahead the markets will be focused on the Canadian Gross Domestic Product data for January due out on Tuesday. The loonie may be at risk of weakening further if the printed figures are weaker than the expected 0.2% decline.

In the US investors will be focusing the U.S. employment report for February, due out on Friday and Monday’s data on personal spending for further indications on the path of monetary policy.

Short term technicals are mildly bullish with the pair looking to test resistance at 1.2670.

Today’s expected trading range is 1.2575 – 1.2695

EUR/USD Comment

Continued general improvement in Euro-Zone data has helped buoy Euro exchange rates for a second straight week, although the turn of the calendar from March into April may prove to be more difficult than days past. EURUSD rallied to close last week at $1.0885, a gain of 0.62%.

In the days ahead, the market has a chance to refocus its attention on two of the major drivers of Euro weakness in 2015: persistently low inflation in the Euro-Zone; and the sustained improvement in the US labor market that is driving a wedge between ECB and Fed policy expectations. On Tuesday, the March Euro-Zone CPI report will be released, where the CPI Estimate is due at -0.1% y/y while on Friday, the March US Nonfarm Payrolls report is forecast to see job gains of +250K, the thirteenth consecutive month of at least +200K jobs growth in the world’s largest economy.

In a holiday shortened week, these data reports represent the two most obvious landmines to EURUSD traders. The propensity for these reports to impact the market is high despite the potential for diminished liquidity as a result of the Friday holiday. If EURUSD is to fall back, then, it will need to be due to a combination of soft Euro-Zone CPI data and strong
US labor market data.

Overall, the big picture for the Euro remains unchanged: lower inflation expectations coupled with falling bond yields means real yields are being reduced, fueling the need for investors to search for yield outside of the region; this should accelerate capital outflows as Euros are exchanged for other currencies to as to invest in foreign assets. Net result: a weaker Euro over the coming months.

Short term technicals are mixed and range bound with support located at 1.0765 while resistance is located at 1.1052.

Today’s expected trading range is 1.0795 – 1.0895

GBP/USD Comment

The British Pound fell for the third week of the past four versus the US Dollar, hurt by disappointing economic data and a generally sour trading sentiment. Traders could push the Sterling to fresh lows this week given key economic data releases from both the US and the eurozone.

In a relatively quiet week for UK economic events risk will keep traders focused on key event risk out of the United States and Europe. Yet any important surprises in final revisions to Q4, 2014 Gross Domestic Product growth figures could force GBP-led moves on Tuesday. Larger GBP/USD volatility nonetheless seems more likely on upcoming US Nonfarm Payrolls figures as the US dollar itself remains volatile.

Political uncertainty further clouds outlook for the British Pound with UK elections due through early May. FX options traders are clearly bracing for the political risks as GBP/USD volatility prices have jumped to their highest since the Scottish referendum. The British Pound remains at risk ahead of a key week for the US dollar, and it may take a substantial shift in trader sentiment to force a meaningful GBP recovery.

Short term technicals are mixed ahead of a risk filled week. Support is located at 1.4720 while resistance is located at 1.4995.

Today’s expected trading range is 1.4750 – 1.4850

US GDP disappoints; FX continues to trade in ranges

dove

The dollar rebounded from the overnight lows this morning extending yesterday’s gains after Fed officials signalled they were still on track to raise the interest rates. In the medium term we expect the current levels to hold waiting for a catalyst to break out of the current ranges. Q4 GDP print this morning was a little weaker than expected and had no impact on the USD. Focus for today is on Yellen’s speech at 3.45 for any clues on Fed policy.

The CAD is trading in a narrow range and continues to be dependent on oil and the USD. Poloz’s speech yesterday was a little more dovish than we had expected, however markets continue to price in a 70% chance of another interest rate cut over the next year.  We continue to adopt the strategy of “buy on dips” on the USD/CAD as we expect the USD to outperform in the medium term.

The EUR is soft and has been unable to sustain ranges above the 1.10 level.  Data points out the eurozone have been more upbeat but we expect A EUR devaluation as we expect monetary policy divergence to drive the euro lower.

The GBP is stronger this morning with Carney suggesting the next move on interest rates will be higher.  The uncertainty of the upcoming elections will continue to weigh on the currency but we expect a rebound toward the end of the year.

At the time of writing the USD/CAD is at 1.2509, EUR/USD is trading at 1.0866 and the GBP/USD is trading at 1.4889.

Oil rallies on Yemen; Poloz doesn’t ruffle loonie’s wings

oil money

Today’s Morning Comment

Opening FX Rates Canadian Crosses Opening Commodities (USD)
USD/CAD 1.2484 CAD/USD 0.8010 Oil 51.09
EUR/USD 1.0863 EUR/CAD 1.3565 Gold 1201.53
GBP/USD 1.4908 GBP/CAD 1.8620 Silver 17.12
USD/JPY 119.13 CAD/JPY 95.38
AUD/USD 0.7796 AUD/CAD 0.9738
USD/PLN 3.7229 CAD/PLN 3.0125

Oil rallies on Yemen; Poloz doesn’t ruffle loonie’s wings

USD/CAD Comment

The Canadian dollar bounced above 80 cents as oil soared on news of Saudi air strikes on Yemen. Crude has had strong gains for the past two days closing yesterday’s trading session above the $51/barrel, off its week-ago lows of $44 a barrel.

Traders were betting that further turmoil in the Middle East will stall tanker traffic from the area and there were fears that Iran would be drawn into the conflict.

North America still has a huge glut of oil, built up in part by the boom in U.S. shale production, but also a projected increase in oil sands production. Yesterday a report from the Conference Board of Canada pointed out that both oil sands and shale production are set to increase, making a return to $100 oil unlikely.

TD Bank downgraded it’s estimated for Canadian GDP growth on Wednesday as a result of the depressed oil prices which is Canada’s main export.

In other news Bank of Canada Governor Stephen Poloz’s speech in London was viewed by the market as less dovish than expected.

In remarks that underscored the possibility the central bank will keep interest rates steady next month, Poloz said the bank’s quarter-point rate cut in January has bought it time to examine the effects of cheaper oil on the economy of Canada.

Poloz’s neutral stance coupled with the surge in oil prices did lift the loonie to the mid-1.24 level and has shifted to technicals into a more bullish Canadian bias.

Short term technicals are bearish with the pair looking to break through the 1.2400 level and target the 1.2350 level. Though there seems to be some momentum on CAD strength, we expect the current bout of US weakness to be short lived.

Today’s expected trading range is 1.2450 – 1.2550

EUR/USD Comment

The euro turned lower against the U.S. dollar on Thursday, as data showing that the number of people filing unemployment assistance in the U.S. last week fell to a five-week low sent the greenback broadly higher.

In a report, the U.S. Department of Labor said the number of individuals filing for initial jobless benefits in the week ending March 21 declined by 9,000 to 282,000 from the previous week’s total of 291,000. Analysts had expected initial jobless claims to fall by 1,000 to 290,000 last week.

The euro found support earlier in the session, after data showed that the Gfk German consumer climate index was set to rise to 10.0 in April from a reading of 9.7 the previous month, compared to expectations for an uptick to 9.8.

Investors remain cautious as Greece failed in a bid on Wednesday to secure a quick cash payment from the euro zone rescue fund to help stave off potential bankruptcy next month.

The Greek government is expected to present a detailed list of proposed reforms to its eurozone partners by next Mondayo.

Short term technicals continue to remain mildly bullish with the pair trying to break above the 1.10 level.

Today’s expected trading range is 1.0800 – 1.0925

GBP/USD Comment

The pound climbed to a one-week high against the U.S. dollar on yesterday, supported by upbeat U.K. retail sales data before retreating toward the end of the trading session.

In a report, the U.K. Office for National Statistics said retail sales increased 0.7% last month, above forecasts for a gain of 0.4%.

The pound has been stronger over the last few sessions driven predominantly by better than expected economic data points. Though the recent run up on the pound seems encouraging, near term focus continues to be around the BoE risk (given low inflation) and the upcoming elections which may create a political gridlock in the UK.

Short term technicals are mixed for the moment with the pair trying to push through the 1.0 level decisively.

Today’s expected trading range is 1.4850 – 1.4975

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Oil Rallies, USD Slumps, CAD Higher…for now

cad oil

The USD is weak this morning with most of the equity markets pulling back on general market risk aversion.  Gold is up 1% and continues to remain strong in this environment.

Oil has spiked higher on the Saudi/Yemen conflict and fundamentals are beginning to shift toward a bullish stance which could prove to be CAD positive.

The Canadian dollar rallied this morning to the low 1.24’s but has given back some gains.  The correlation between oil and the loonie continues to remain strong and oil should provide short term direction on the currency. Of note is the market expectation of a 70% chance of a rate cut by the BoC over the next 12 months.  We continue to suggest a “buy on dips” strategy for on the USD/CAD and hold our forecast of 1.30 over the coming months.

The EUR continues to test the 1.10 level and is materially stronger as a result of German confidence data prints and a weaker USD dollar. 

The GBP is also up as retail sales surprised higher. A speech by BoE Carney tomorrow remains the near term risk for the currency. 

At the time of writing the USD/CAD is at 1.2483, EUR/USD is trading at 1.0923 and the GBP/USD is trading at 1.4825 at the time of writing.

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