Althea Spinozzi
Join Saxo Bank global sales trader Althea Spinozzi as she discusses topics in the fixed income market including China's increasingly important role in bonds.
Article / 05 July 2016 at 14:48 GMT

FX jitters increase on lack of data

FX Trade Strategist /
  • Nerves fray on UK issues
  • Oil prices under pressure
  • NFP won't be such a big deal

            The reorganisation of the British ruling class is only just starting. Photo: iStock

By Michael O'Neill

A lack of top tier US data and the wait for the nonfarm payrolls report on Friday left traders wandering the wilderness looking for something to fret about. They found plenty. Yesterday's Standard Life commercial real-estate fund news got the jitters started. New lows for US 10-year yields got them looking for the exits and then the breach GBPUSD precipitated, if not a stampede, then a really fast jog, into US dollars and Japanese yen. Summer markets and Brexit served to reduce liquidity as well.
Canada Business Outlook survey – No rose tinted glasses

The Bank of Canada (BoC) released its Business Outlook Survey (BOS) on July 4. It wasn’t rosy. According to the survey, “forward looking sales indicators suggest soft business activity ahead”. Energy investment is forecast to decline further, hiring intentions remain modest, and capacity pressures have eased as have credit conditions.

In April, the Bank of Canada expected that the Canadian economy would be closing in on full-capacity in 2016 and 2017. The Alberta wildfires didn’t just destroy hectares of forest near Fort MacMurray, it torched the economic growth outlook as well, shaving 1.25% from the BoC’s 2016 GDP forecast.

The slowdown in US economic growth didn’t help the Canadian outlook either. If the US economic engine is sputtering, who is going to buy Canadian exports?

And that was before Brexit.

The UK vote to exit the European Union opened a nasty can of worms and left the British government in disarray. The chief cheerleaders for the Brexit side, Boris Johnson and Nigel Farage have raced away like vandals after trashing a park, leaving others to clean up their mess.

The reorganisation of the British ruling class is just getting started leaving FX markets extra-vulnerable to shocks such as yesterday’s Standard Life Investments decision to suspend trading in a UK commercial real estate fund. Tuesday’s FX markets spent the day in risk aversion mode.

Loonie could fall on oil slick

The USDCAD/WTI relationship remains intact and it seems like the correlation gets tighter during periods when key economic releases are scarce while waiting for a top tier release. Such is the case this week with US nonfarm payrolls due on Friday. (Forecast 200,000). WTI is moving lower while USDCAD rallies, almost tick for tick.

The WTI uptrend from the February low ended on June 10 with the move below $48.55. The ensuing decline stalled at the 38.2% Fibonacci retracement level of the April-June range but subsequent rallies were capped at $51.50. A daily close below $46.80 would see the 38.2% level tested again and expose WTI to further losses toward $43.35. If that happens, it is not hard to see USDCAD retesting 1.3100.

USDCAD and WTI -hourly
Source: Saxo Bank 

Saved by the range

USDCAD has bounced around within a 1.2460-1.3188 range since the end of March and despite, Brexit, there is no reason to expect the range to break, at least for the next month.

Brexit and the uncertainty surrounding the divorce has pushed a US rate hike down the road. The CME FedWatch tool assigns a probability of just 17.8% for a December hike while giving a rate cut a 3.6% probability.

Canadian interest rates aren’t going anywhere either. The BoC is still waiting to see evidence that the fiscal stimulus programs announced in March are paying dividends. That, and the uncertainty surrounding the impact of the Alberta fires will keep them on the sidelines.

Safe haven flows initially exclude Canada, Australia and New Zealand. The latter two should be preferred destinations for “fraidy capital” due their locations. Canada, and its proximity to the US should also be on the map. Selling of GBPCAD should also serve to limit USDCAD gains.

The diminished expectations for a US rate increase, a sidelined Bank of Canada and the prospect of safe-havens flows should help to keep the range intact. at least for the next few weeks.

USDCAD daily with range highlighted
 Source Saxo Bank

– Edited by Clare MacCarthy


Michael O’Neill is an FX consultant at IFXA Ltd

John Roberti John Roberti
Dear Michael, I read your report and I agree with its content but I believe that oil is clearly on the downside due to EIA week end report really recognizing that the preceding forecasts were not accurate ad the glut is increasing! Lately the report from Russia pushing production to the limit...! We should know better thursday but I am not so sure that the dollar will not come back a bit and the Canada figures will not be rosy for a while..? Thus I believe that 1,3180 could be in the card sooner than later
Michael O'Neill Michael O'Neill
Hi John: I don't disagree with you that Oil is on the downside-just that it is on the downside within a $45-$51.00 range. I also agree that risk/reward favours lower oil prices. The issue I have is " whose tail is wagging what dog"? Is oil price weakness more a factor of the risk aversion and the strong dollar as the oil fundamentals are well known? Are they truly a factory of supply demand issues in a slowing global economy which by now, everyone knows. I don't but one thing I do know is that oil prices are just one component for USDCAD, a big one, but still just one.
fxtime fxtime
LOL my windows 10 outlook has just failed me due to a Microsoft mammoth update lastnight but on an easier note the blessed dead acct gains +5 LOL hope you got it too?
Michael O'Neill Michael O'Neill
I din't do it. I had pc issues of my own.
fxtime fxtime
LOL....would it be the same upgrade?
Michael O'Neill Michael O'Neill
No, mine was a hardware issue My third monitor keeps crashing and freezing the other two. "Display driver stopped working but has been repaired". The message works wonderful, the repair, not so much.


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