Article / 07 June 2016 at 14:40 GMT

Central banks playing dice with world markets

FX Trade Strategist /
  • Ivey PMI print undermines loonie
  • Yellen dismissive of payrolls report
  • Canadian employment data will be incomplete

By Michael O'Neill

George R.R. Martin’s Game of Thrones is an epic tale of war and intrigue among seven kingdoms, each vying for supremacy over one another. In the G10, however, we have seemingly embarked on a "game of throws" in which central bankers cast dice to determine policy actions.

This, it appears, will proceed until they crap out; at this point, we all lose but they get to keep playing.

Playing dice with the market
Nice work if you can get it. Photo: iStock

For the past month, Federal Reserve officials trotted across the land and the globe extolling the necessity of a rate hike “in the coming months”, all the while implying that market expectations for such a move were too low. Prior to that, they harped incessantly about rate hikes being “data-dependent”.  FX traders started to listen, trusting that perhaps this time the Fed wasn’t leading them astray.

Then the Fed crapped out. This time in the form of a nonfarm payrolls report that was just plain ugly. And to add insult to injury, the previous two reports were revised downwards. 

Even a drop in the unemployment rate was scoffed at, as the improvement was due to a decline in the participation rate...

Change in US employment:
Source: Federal Reserve Bank of St. Louis

After that report, it seemed reasonable for market participants to rule out a rate hike for June and even July...  not so fast. In the game of throws, when a central bank rolls “snake eyes”, it gets to roll again, and that is exactly what Fed chair Janet Yellen did on Monday.

In her speech to the World Affairs Council of Philadelphia, she seemed dismissive of the May employment report. She said. “Although this recent labour market report was, on balance, concerning, let me emphasise that one should never attach too much significance to any single monthly report. Other timely indicators from the labour market have been more positive”.

Yellen, by most accounts, delivered a fairly upbeat assessment of the US economy while in the City of Brotherly Love. She repeated that more gradual rate hikes were coming over time while noting that global headwinds were easing. Her sentiments were echoed by Atlanta Fed president Lockhart and Boston Fed president Rosengren on Monday and Cleveland Fed president Mester on the weekend. They all cautioned against reading “too much” into one data point.

Goldman Sachs analysts have bought into the Fed argument. According to Bloomberg, Goldman says that there is a 40% chance of a Fed rate hike in July. The CMC FedWatch tool, however, says it's only 25.8%.

FX traders have voted with their wallets and the US dollar has declined against the majors, led by the Aussie and CHF.

Change in USD v. majors; pre-NFP until  today (June 3, 1229 GMT to June 7, 1330 GMT):

Create your own charts with SaxoTraderGO click here to learn more

Source: Saxo Bank

Poloz and the dice

Bank of Canada governor Stephen Poloz is also at the craps table. His idea of rolling the dice is to stand and watch. The Bank of Canada’s mandate is “to promote the economic and financial welfare of Canada” and Poloz has apparently determined that the best way to accomplish those objectives is to wait and see how the economy heals itself after the Fort MacMurray wildfires. 

Stand and watch
Standing and watching, of course, is a time-honoured Canadian tradition. Photo: iStock

In his press conference on Saturday following a lecture at the University of Ottawa, Poloz said that it is hard to predict when the Canadian economy will rebound from the fires and forced evacuation.  

Those aren’t the words of a man ready to adjust monetary policy anytime soon.

Canadian employment report due Friday

Friday’s Canadian employment report should not be much of a factor for FX traders. If it is, the affect should be fleeting. 

The impact of the Fort MacMurray wildfires and city evacuation has created a ton of complications for Statistics Canada. Most economists suggest that they will just omit Fort MacMurray from the survey.  Regardless, the fact that the data are incomplete should make the results meaningless and therefore a non-event. 

For what it's worth (and it's not worth much), the forecast is for a gain of 3,800 jobs.

USDCAD technical outlook

The USDCAD technicals are bearish while trading below 1.2860 and we are looking for a move below 1.2738 (61.8% Fibonacci retracement level of May range) to extend losses back to the May low of 1.2462. 

A failure to break below 1.2730 should lead to 1.2730-1.2960 consolidation.

USDCAD hourly:
Source: Saxo Bank

— Edited by Michael McKenna

Michael O'Neill is an FX consultant at IFXA Ltd. Follow Mike or post your comment below to engage with Saxo Bank's social trading platform.
John Shaw John  Shaw
The Fort MacMurray wild fires are the perfect excuse cards for about 9 - 12 months on CDN data. LOL
John Roberti John Roberti
Michael, the market does not seem to attach any importance to Ivey PMI data despite the poor showing.. You seem also globally optimistic regarding the economic performances of Canada! Do you have any information regarding the restart of oil production in Alberta?
John Shaw John  Shaw
My 2 cents say the Alberta oil companies are happy to be down at this point in time. They are taking their sweet sweet time to get things restarted. That is for sure.
Michael O'Neill Michael O'Neill
Hi John. Ivey is notoriously volatile and therefore most mainstream economists dismiss it. I would as well except I have been flayed too many times on an offside print. However the reactions rarely last

As to oil, Suncor has been restarting production for a couple of weeks as have the others. Most oilsand facilities were untouched and can be run from camps on site.

Still it will be a tedious process to.get back 100% quickly
Michael O'Neill Michael O'Neill
Hi Mr. Shaw. I don't think the oilsands guys want to delay production any longer than they have to. The need the cash flow to service debt and overhead. BTW. Suncor says that oilsands operations will be back at full production by the end of June. I


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer
- 沪ICP备13028953号-1

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail