Article / 30 September 2016 at 14:42 GMT

'For FX traders, it's the silly season'

FX Trade Strategist /
  • Canada GDP beats forecasts... again
  • Friday's NFP report is the key focus next week
  • USD ignores Michigan consumer sentiment beat

By Michael O'Neill

September is over and what has happened to USDCAD? If you use the range from the August 31 close to 1500 GMT on September 30, the answer is nothing: USDCAD is unchanged. 

The dip to 1.2820 and the rally to 1.3278 can be chalked up to noise. The Opec pseudo-deal (it has not been studied or ratified) cancelled out a dovish-leaning central bank. The US dollar lost ground against the rest of the majors except for sterling where GBPUSD is in its own post-Brexit world.

Welcome to the Christmas rush

Autumn is barely a week old. The leaves haven’t even started to change colours, yet for FX traders it’s the silly season. 

December is notorious for rapidly diminishing liquidity as the market winds down trading and closes the books for year-end. In Canada, October 31 is the year-end for Canadian banks, which tends to impact USDCAD trading in the last two weeks of the month.  

Consider it a sort of Hallowe'en for Canadian finance types. Photo: iStock 

In addition to the usual US Thanksgiving, Christmas and New Year’s holidays, the US election may be fairly disruptive. A Donald Trump presidency would create huge market volatility as he has vowed to renegotiate or rip up the North American Free Trade Agreement (and other deals), wants to dump Federal Reserve chair Janet Yellen, and says he will declare China a currency manipulator.  

Get your Christmas shopping done early, you could become very busy.

Canada GDP soothes rate cut fears

The Canadian dollar was beaten with the ugly stick following disappointing inflation data and comments from the Bank of Canada governor expressing concern about the low level of inflation. 

Today’s Canadian GDP data have eased those concerns. Canadian GDP for July rose 0.5%, beating forecasts and following a 0.6% gain in June. TD Bank economists suggest that the data keeps Q3 GDP on track for 3% growth. That is still below the BoC’s forecast of 3.5%.

The risk that the BoC actually cuts rates is pretty low and although today’s data should confirm that view. Nevertheless, governor Stephen Poloz remains concerned about the persistently low level of inflation and may want to keep USDCAD above 1.3000.


Source: Statistics Canada

The week ahead

In horse racing parlance, we are in the home stretch. This week ushers in Q4 and just as a reminder, there are only 83 days until Christmas. The week will start with holidays in Australia, Germany, and a two-day break in China. The Reserve Bank of Australia has its first meeting under governor Philip Lowe; no policy change is expected.

US data releases will come under extra scrutiny as investors seek to determine the prospects for a December rate hike. As usual, the nonfarm payrolls report on Friday will be key. 

The forecast is for a gain of 170,000, but since the market is predisposed to a December hike it stands to reason that if the data come in below expectations, the US dollar will sink by far more than it would gain on a strong number.

The week that was

This was the week that a lot of hot air was expected to fill the sails of the good ship S.S. Market... in the end, it did and it didn’t. The 14 Fed speakers (including Yellen), the European Central Bank’s Mario Draghi and the Bank of Japan’s Haruhiko Kuroda didn’t offer anything new...

Fortunately, Opec did.

Monday showed a tentative start to the week. Markets were cautiously awaiting the presidential debate in New York. A rise in New Zealand’s trade deficit led to some NZDUSD selling. USDJPY was heavy ahead of a speech by BoJ Governor Kuroda which led to additional selling in Europe despite his remarks hinting at deeper negative rates.  

Renewed Brexit concerns drove GBPUSD down in Europe but the move was reversed by the end of the New York session. USDCAD closed at the high of the day on reports that the Algiers meeting would not result in an agreement (oops). EURUSD peaked mid-morning in New York and then drifted lower until the end of the day

On Tuesday, Asia’s early session was dominated by headlines from the Clinton/Trump debate.  FX markets were choppy. By the time Europe walked in, financial markets had concluded that Clinton was the winner and traders could go back to fretting about what really mattered, like Deutsche Bank's share price weakness and capital concerns.  

GBPUSD was just above the low of the day when New York started and managed to rally from 1.2950 to 1.3025. US equities nearly erased all of Monday’s losses, likely due to Trump’s poor performance in the debate. Oil prices declined as hopes for an oil pact from Algiers dimmed further.

Wednesday saw USDJPY, AUDUSD, and NZDUSD rise, supported by an improved tone in risk sentiment. That tone didn’t survive the European open. EURUSD was wobbly due to German banking concerns but Draghi reiterated a need for structural reforms to boost Eurozone growth, which provided some support for EURUSD. 

Positive comments from BoE Governor Mark Carney about the long-term prospects for the UK economy gave GBPUSD a short-lived bid.  His deputy governor hinted at rate cuts, stating that “a rate cut would depend on economic data”, adding that the Bank would prefer to act preemptively. 

EURUSD closed slightly lower in part because of better-than-expected US durable goods results. USDCAD crashed and oil prices soared when Opec announced a production cap deal during the New York afternoon.

Crude oil
A deal that is rapidly becoming rather anticlimactic... Photo: iStock 

Thursday, the Opec announcement dominated the Asia session and oil prices rose. AUDUSD and NZDUSD climbed in early trading but retreated during the European session. USDJPY rallied which may have had more to do with half-year end positioning than anything else. 

The US dollar ended the New York session on a mixed note. EURUSD erased all its morning gains due to contagion fears from German banking issues and healthy US data releases (GDP, jobless claims,trade) and USDJPY dropped 0.100 points from 101.84 to 100.84 in a risk-aversion move. Oil prices declined from their peak.

— Edited by Michael McKenna

Michael O’Neill is an FX consultant at IFXA Ltd.
Market Predator Market Predator
@Mike: hello, I have one plain question concerning your info, Re: "In Canada, October 31 is the year-end for Canadian banks" So what will banks in Canada do in November and December and when is start of 2017 for them? Btw: nice article + summary as usually from you! Thanks in advance! Kind regards, MP :)
Michael O'Neill Michael O'Neill
November is the start of the new year and trading as usual. However, since December is year end head most everywhere, Canadian bank traders will experience the same liquidity issues as the rest of the FX market. The only difference is that for the rest of the world, FX losses in December will have a negative impact on the bonus pool for 2016. For Canadian banks, a December hit doesn't hurt the bonus pool.


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