- FX markets keeping their eye on Wall Street
- Oil prices suffering from rising US production
- Holidays on Monday and Friday = a short trading week
The loonie and the Dow both fell this week but the Canadian currency bounced back faster.
By Michael O'Neill
The headline Canadian employment number was beastly. Stats Canada announced 88,000 jobs were lost in January. That was a far cry from the consensus forecast for a gain of 10,000. The loonie tanked like this week’s Dow Jones index but in minutes, not days. The difference was, the loonie recovered.
USDCAD spiked from 1.2590 to 1.2686 within seconds of the reports released. Then traders read the second sentence in the Labour Force Survey. It noted that 137,000 part-time jobs were lost but full-time jobs increased by 49,000.
A collective “Doh” echoed across trading rooms. The loss of the part-time jobs was because the holiday season ended. In reality, it was a healthy report. USDCAD collapsed to 1.2560 before ticking higher.
USDCAD technicals are bullish inside the 1.2240-1.2920 range that has been intact since the middle of September. The break above 1.2350 negated an intraday downtrend and a sustained break above the 100-day moving average at 1.2314 supported by a close above 1.2560 will shift the focus to 1.2920.
Chart: USDCAD daily
Wonky Wall Street
Punters who benefited from soaring equity prices and were spending their winnings before cashing their chips, had a rude awakening this week. Their gains as of January 31, were 5.6%. One week later, not only did they lose those gains, they were down 3.47% for the year. Plans for a new Porsche became hopes for a gently-used Ford Fiesta.
Bank of England Governor Mark Carney acknowledged the volatility on February 8, noting that markets are healthier when there is two-way risk. Arguably, the equity market meltdown is just a correction of an over-heated market. US tax reform policies and infrastructure spending plans should keep domestic growth humming along.
The week ahead
The week will get off to a slow start until Wednesday. Equity price movements will keep FX traders on their toes
Monday, Japan is closed for National Foundation Day while the USA celebrates Presidents Day
Tuesday: It’s a big day for data in the UK, highlighted by inflation data. The consensus forecast is for CPI to dip to 2.9%, y/y (previous 3.0%).
Wednesday: It is GDP Day in Japan, Germany (plus other Eurozone countries), and the Eurozone itself. Eurozone Q4 GDP is forecast to rise to 2.7% from 2.6%, y/y.
It is a big day for data in the US as well. January CPI is forecast at 2.1%, y/y, unchanged from December. January retail sales are expected to slip to 0.3% m/m (previous 0.4%).
Thursday: Australia's, January employment report gets things going. The consensus estimate is for a gain of 25,500 jobs (previous 34,700) US data releases include, PPI, Capacity Utilization, Industrial Production, and Philadelphia Fed Manufacturing Index.
Friday: Asia markets will be celebrating Chinese New Year. UK Retail Sales and US Michigan Consumer Sentiment are the only notable releases.
The week that was
Monday: Global stock markets were front and center. Asia and European equity indices reacted to the previous Friday’s Wall Street market meltdown with one of their own. The FX market was rather oblivious to the equity price movements, and the US dollar opened in New York little changed from Friday’s closing levels. That changed with the opening bell on Wall Street. Stock prices collapsed. The Dow Jones Industrial Average (DJIA) shed 1,175.21 points or 4.6%, and this time, the US dollar soared. The day ended with US dollar gains across the board except against the Japanese yen. Strong US economic data, including a rise in the ISM non-manufacturing index, provided additional support to the greenback.
Tuesday: Equity woes spilt into Asia markets. The Nikkei 225 dropped 4.73%. AUDUSD got spanked on weak Retail Sales and Trade data. The Reserve Bank of Australia delivered as expected. They left rates unchanged and issued a neutral policy statement. European trading was a tad less frenzied. EURUSD got a lift from German Factory Orders data while GDPUSD traded sideways. The FX majors opened in New York close to flat. Only AUDUSD was lower than Monday’s close. In New York, FX traders were jittery, keeping their eyes on Wall Street. Monday’s rout wasn’t repeated. The DJIA closed with a 567.02 gain. Oil prices rallied when US inventories didn’t rise as much as expected. The US dollar finished the session with small gains across the board, except against AUDUSD and USDCAD.
Wednesday: In Asia, NZDUSD jumped after a strong employment report, but the move was reversed by the time New York opened. USDJPY drifted lower on stock market nervousness and was the only currency to record a gain when New York opened. EURUSD rallied in Europe but got crushed by when Germany announced a new government coalition with a Social Democrat Party member becoming Finance Minister. Sterling was sold after a drop in UK house prices. Oil prices were under pressure due to fears of rising US production. The fears were confirmed in New York when the Energy Administration Agency reported US crude production rose to 10.25 million barrels per day. A comment by European Central Bank council member Ewald Nowotny complaining that the US administration was keeping the US dollar low, spurred broad US dollar demand. Also, the US Congress announced a budget deal which removed the threat of a government shutdown. The US dollar finished in New York with big gains against the majors except for sterling. GBPUSD finished flat for the session, ahead of Thursday’s Bank of England meeting.
Thursday: FX markets were nervous and choppy. In Asia, the Reserve Bank of New Zealand left rates unchanged and issued a somewhat dovish statement. NZDUSD dropped from 0.7258 to 0.7170 by the start of Europe and then spent until the end of the New York day, clawing back losses, finishing at 0.7219. AUDUSD traded steadily lower. USDJPY was bid from the Asia open until New York started, peaking at 109.74. It was all downhill after that and USDJPY finished at 108.76. The Bank of England left rates unchanged but a hawkish sounding sentence in the Quarterly Inflation Report sent GBPUSD soaring from 1.3870 to 1.4062, just before Wall Street opened. A fresh wave of equity selling began and when the day was done, the DJIA had shed 1,032.9 points for 4.14%. The S&P 500 and Nasdaq followed closed behind. The day ended with the Japanese yen and Swiss franc booking gains, EURUSD and GBPUSD, unchanged from the New York open and the commodity currency bloc in the red. Oil prices continued to be undermined by fears of rising US production.
Friday, FX markets were a tad subdued and range-bound. A kind of a calm washed over European equity markets and Wall street opened on an "up" note.
– Edited by Clare MacCarthy
Michael O’Neill is an FX consultant at IFXA Ltd