Pause before the panic
- Traders biding their time ahead of speeches and data
- FX markets wait for speeches by Draghi and Yellen, US nonfarm payrolls data
- NFP report could be a let-down
- Loonie tracking euro more than oil
FX markets have hit the snooze button. There will be plenty of time to panic near the end of the week, but the first few days of November have been a sea of tranquility.
Traders are already anticipating Friday’s US nonfarm payrolls data. The consensus forecast is for a gain of 180,000 jobs, far better than September's 142,000 gain and validation that US job growth is strong and sustainable.
Here are some scenarios:
Weak report: The spin doctors will explain a weaker-than-expected report by reminding markets that because the US is close to full employment, it is hard to sustain large gains, an excuse they used last time. They will also remind traders that there is still one more NFP report before the December FOMC meeting. Nevertheless, the US dollar should weaken.
Strong report: A strong report would be seen as validation of last month’s hawkish FOMC statement and encourage US dollar buying. At the same time, analysts will warn traders that there is still one more report before the FOMC.
Weaker than-expected but higher than previous report: Under this scenario, the USD should be extremely choppy, with bulls and bears trying to re-position themselves. This scenario would likely result in flat to small dollar gains, mostly because there is still another jobs report due before the December FOMC. Because there is still one more employment report ahead of the FOMC meeting, the effects of this report will be similar to many previous reports; short-lived and forgotten by the middle of the following week.
Who plugged the oil leak?
There hasn’t been much good news for oil price bulls in the past month. In fact, the news has been mostly dismal. There has been no shortage of bearish price forecasts, US crude storage is close to capacity, Russia and Saudi Arabia are pumping crude at a record pace, Iranian crude is expected to return to global markets soon, and the Chinese economy is slowing.
Perhaps Opec’s grand scheme to use low prices to crush non-Opec producing nations has worked. Earnings from major oil companies have been decimated. Exxon Mobil posted a 37% drop in revenue, Chevron's third-quarter earnings plunged to $2.0 billion from $5.6 billion, and last week Shell wrote of $8 billion in investments in Alaska and Canada.
The mix of oversupply, new production from Iran and possible capacity constraints in the US suggests that oil price gains are likely unsustainable. At the same time, the failure of WTI to break below the $42.70-$43.30 floor may be proof that the current range reflects these circumstances and needs another catalyst to break through the floor.
WTI daily with trading range
The loonie is a side show. USDCAD is tracking US dollar moves against the majors, particularly EURUSD, which is a good indication that domestic issues and data have taken a back seat to global events.
USDCAD tracking EURUSD moves
USDCAD technical outlook
The intraday USDCAD technicals are bullish while trading above 1.3080, looking for a break of resistance in the 1.3150-60 area to test minor resistance at 1.3180, which, if broken, would extend gains to 1.3280. A move above 1.3280 would put the focus on 1.3455. On the downside, a break of 1.3080 would lead to a test of support in the 1.2990-1.3010 area.
USDCAD 4-hour chart
— Edited by John Acher