TV

John J Hardy
FX markets were eagerly anticipating the latest minutes from the FOMC, but in the end traders appeared to be looking the other way, says Saxo Bank’s John Hardy. The minutes revealed that the FOMC had a robust debate about a possible rate hike in June and that helped the positive outlook for USD.
Article / 28 February 2014 at 16:37 GMT

China stirs the wok as Ukraine provides food for thought

FX Consultant / IFXA Ltd
Canada

• A tale of two GDPs — Canada and US diverge
• Ukraine not the only nation facing turbulence
• USCAD technicals looking for move lower

The highly-anticipated US GDP data (2.4 percent) was slightly lower than the already reduced forecasts of 2.5 percent, which, combined with the higher eurozone inflation data (Feb. 0.8 percent vs. 0.7 percent forecast y/y), put downward pressure on the US dollar. The EU inflation report had the larger impact as it appears to have diminished concern that the European Central Bank (ECB) would ease rates next Thursday. The above mentioned data gave the loonie a bit of a boost but the release of the Canadian GDP really oiled the wheels, putting USDCAD on the defensive and making the USDCAD bulls nervous.

Canadian GDP surged to 2.9 percent in the fourth quarter, handily beating forecasts of 2.5 percent. It also provided a much- needed lift to the domestic economic outlook and damaged any lingering thoughts of a more dovish central bank statement on Wednesday.

Chart: Canada GDP

Canada data

Risk aversion threats read like a Tom Clancy novel

 Command Authority is the title of the late Tom Clancy's latest novel; a tale that depicts events not unlike what is unfolding in the Crimea/Ukraine. Unfortunately, Barack Obama is no Jack Ryan and there aren't any virtuous American special operatives to come in and save the day. There are reports that Russian marines have seized the airport and government buildings in Crimea, which is a plausible story due to the high concentration of Russians living there. The Russian Federation also considers the Black Sea ports vital to their national interest.


argentina
Argentina's leader, Cristina Fernandez de Kirchner, is believed to have fled the presidential
palace in the face of civil unrest. Photo: Jeff Zelevansky / Getty


There are other tinderboxes around the globe just waiting for a match, including China and the nations that surround the South China Sea. Also, China has not backed away from the inflammatory rhetoric and military posturing with Japan over the Diaoyu/Senkaku islands which both claim. Still in Asia, the Thailand government and protestors are exchanging gunfire. In South America, Argentina's president, Cristina Fernandez de Kirchner, has reportedly fled the presidential palace in a helicopter in the face of Ukrainian style civil unrest. Venezuela is smouldering following recent elections that have left the country divided and the Middle East is still a mess. The Ukraine/Crimea events, due to the freshness of the actions and Russia's role, may provide an element of uncertainty to markets but for the most part, all of the above are merely distractions ahead of next week's central bank meetings and major data releases.

PBOC squeeze pokes holes in long CNY positions

The Peoples Bank of China (PBOC) appears to be fans of Iron Maiden, not the British heavy-metal band but rather the medieval torture device, as evidenced by the nasty squeeze that it orchestrated on long CNY positions. The re-introduction of two-way risk into CNY trading led to a spillover effect in other markets over fears that the moves may induce a further economic slowdown in China. Just when financial markets are starting to normalise (or what passes as normal, these days), China stirs the wok.

The week that was

This week started with numerous comments from officials attending the G20 summit. Mario Draghi, the ECB president, was quoted as saying that “policy makers were ready to add stimulus if outlook for prices deteriorate, though there are currently no signs of deflation in the Euro area”. Traders focused on the first part of the sentence and EURUSD came under pressure. China's CNY devaluation and Ukraine developments had traders eyeing risk aversion moves. On Thursday, Janet Yellen's highly anticipated speech proved to be an echo of her previous testimony while US durable goods surprised to the upside. The US Federal Reserve chairman blamed the weather for the US slowdown, which is consistent with most analysts' conclusions.

The week that will be

Next week is gearing up to be rather entertaining, at least in FX trading opportunity terms, with a full slate of major global data releases on tap and interest rate decisions expected from the Reserve Bank of Australia (RBA), the Bank of Canada (BoC), the Bank of England (BoE) and the ECB. The HSBC China Manufacturing purchasing managers' index (PMI) ahead of a slew of Eurozone PMIs, will set the tone early. Traders will be looking for evidence of strengthening in global economic growth. The week should end with a bang, with the release of the US nonfarm payrolls report and the Canadian employment report. Both releases are noted for the inaccuracy of the consensus forecasts.

 USDCAD technical outlook

The short-term USDCAD technicals are bearish while trading below 1.1140, which represents the third in a series of lower highs, the previous two being 1.1224 and 1.1158. The break of the uptrend line (4-hr chart) at 1.1120 points to a deeper correction to 1.1050. A break of this support level could see a retest of the 1.0910 low, last seen two weeks ago. A failure to move below 1.1050 will keep the existing 1.1050-1.1190 consolidation range intact.

Chart: USDCAD 4-hour

usdcad

Source: Saxo Bank

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Tradingfloor.com 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 Tradingfloor.com 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 Tradingfloor.com 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 Tradingfloor.com or as a result of the use of the Tradingfloor.com. 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 Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com 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 our trading 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

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