Article / 24 January 2013 at 8:08 GMT

USDCAD, others, finally set for real movement?

John J Hardy John J Hardy
Head of FX Strategy / Saxo Bank
Denmark

JPY crosses zoomed back higher to key resistance after weak trade figures and more official jawboning. Meanwhile, a softer BoC stance finally has USDCAD pushing at parity again – is it ready to break higher finally?

Trade Numbers/official jawboning hit JPY again
With asset markets still relatively even keeled (so far) after Apple’s slightly disappointing results – and very worrisome forecasts and lack of specifics thereon – the JPY weakened again from yesterday’s peak after a weak trade report that saw Japan’s trade deficit expanding back towards its modern worst record from late last year. More jawboning from Japanese officials on USDJPY (a deputy minister saying that 100 wouldn’t be a problem and another deputy minister denying that Japan is engaging in competitive devaluation. The latter is rich, considering the new PM has explicitly stated that this is what it is all about.) also helped the JPY weaker, though I think this is also supported by asset markets maintaining an amazing level of complacency – at least in equities. The bond rally yesterday has yields back lower and this doesn’t sit so well with JPY at new extremes in weakness. In fact, the first trading day of the year aside, the US 10-year yield yesterday edged within a couple of bps of its low for the year.

Chart: USDJPY
Looking for resistance levels, the first one that springs to mind is the 0.618 Fibo retracement of the corrective wave, which has already come into view overnight around 89.40 and is a compelling one (give or take 20 pips) due to the structure of the last “higher-high” wave being almost entirely rejected by the recent sell-off. If the pair fades from here, we’ll have a semi- head and shoulders formation with the neckline back around 88.00. If the pair does manage to pull back above 90 and to new highs, I have a hard time imagining we’ll see a hot-knife-through-butter move like we saw from 82 to 90.

usdjpy

Bank of Canada
The Bank of Canada toned down its rhetoric (http://www.thestar.com/business/article/1318837--canadian-interest-rates-will-stay-low-but-bank-of-canada-says-it-overestimated-growth) on policy tightening on signs that Canadian consumers – already possibly the world’s most leverage – have finally backed away from leveraging up further. While this might be considered “good news” from the BoC’s perspective, let’s also consider what the downside of a credit bubble looks like for an economy…Carney may be glad that he is headed off to the BoE just as the Canadian economic ship is sinking.

Chart: USDCAD
USDCAD is pushing at its 200-day moving average and parity. Could the pair finally be waking from its long slumber? The BoC meeting did see the front end of the yield curve back off a bit, but more support for parity falling again in USDCAD would come from weaker energy prices and a softer equity market. If the November 1.0060 area resistance falls in coming days, there may not be much to stop the pair from an eventual 1.0500 test again.

usdcad

Looking ahead
EURUSD is an absolute ranging mess – zooming around endlessly within the confines of a 1.3260-1.3400 box. Please let us move out of that area so we can get some direction. I prefer a downside resolution because this bout of range trading has taken all momentum out of the chart.

And AUDUSD – it’s been an endless range there as well – if USDCAD is going to rally, the odds of a 1.0600+ strain credulity, but to get the bearish juices flowing, we need the US equity market to sell-off a couple of percent and for AUDUSD to push back below 1.0480.

On the calendar today we have preliminary Euro Zone/ German Manufacturing and Services PMI, which may cool enthusiasm for bidding European equities up further if we don’t see marked improvement. After previously leading, the German DAX is now showing signs of having a hard time following its US counterpart higher. And the Apple earnings announcement last night could prove a kind of hurdle for the market after a rather downbeat forecast for this former world beater.

Later we have the weekly US Jobless claims numbers, which can only have jumped considerable after last week’s impossibly low figure that was likely caused by statistical distortions. Look for a mean-reverting bump back higher there.
In Asia tonight, look out for the latest Japanese inflation data and the BoJ meetings minutes from their December meeting (not so interesting that these come out after the following meeting…)

Economic Data Highlights

  • Japan Dec. Adjusted Merchandise Trade Balance out at -¥800.7B vs. -¥760.9B expected and -¥852.1B in Nov.
  • China Jan. HSBC Flash Manufacturing PMI out at 51.9 vs. 51.7 expected and 51.5 in Dec.
  • New Zealand Dec. Credit Card Spending rose +4.6% YoY vs. +4.0% in Nov.

Upcoming Economic Calendar Highlights

  • Sweden Dec. PPI (0830)
  • Sweden Dec. Unemployment Rate (0830)
  • Germany Jan. Preliminary Services and Manufacturing PMI (0830)
  • UK Dec. BBA Loans for House Purchase (0930)
  • UK Jan. CBI Reported Sales (1100)
  • US Weekly Initial Jobless Claims (1330)
  • US Weekly Bloomberg Consumer Comfort Survey (1445)
  • US Dec. Leading Indicators (1500)
  • US Jan. Kansas City Fed (1600)
  • US Weekly DoE Crude Oil and Product Inventories (1600)
  • UK BoE’s Salmon to Speak (1630)
  • Japan Dec. National CPI (2330)
  • Japan BoJ Minutes of December Meeting (2350)

 

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