USDCAD Overnight Range 1.2468-1.2535

Friday the 13th is not considered much of a lucky day (just ask the folks at Camp Crystal Lake) and it appears traders took note and stayed on the sidelines. The Asian session showed some signs of life but not to the degree seen earlier this week.  A speech by Glen Stevens, governor of the RBA, appeared to downplay the prospects for another rate cut any time soon and AUDUSD bounced. USDJPY losses in Asia were reversed in London.

In Europe, the Greek’s appear to have dialed back on the inflammatory rhetoric which has helped EURUSD hang on to earlier gains above 1.1400. The Russian/Ukraine ceasefire has eased tensions, somewhat which has helped EURUSD.

USDCAD dropped through support at 1.2510 following the release of Manufacturing Shipments which (Actual 1.7%, vs. Forecast 1%) while WTI prices gained. (Currently $52.75) However, a lack of Canadian data next week and on-going negative sentiment should limit USDCAD losses. US and Canadian holidays on Monday should ensure a quiet afternoon session, today.

USDCAD technical Outlook

The short term technicals are mixed as USDCAD is stuck the 1.2380-1.2680 trading band. Intraday, the technicals are bearish while trading below 1.2510 but needing a break of 1.2445-50 to extend losses to 1.2380. Above 1.2510 targets 1.2570 and 1.2610.

Today’s Range 1.2440-1.2510

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….dropping from 1.2565 since Toronto walked in, due to the unexplained 5.6% jump in WTI prices (Currently $51.41/bbl) with a dash of general US dollar weakness thrown in. A softer than expected US retail sales report is behind the US dollar sell-off vs. the majors. US Retail Sales was a negative 0.8% vs. forecast of -0.5% which has served to muddle the rate hike waters.

It wasn’t all fun and games overnight, especially for long AUDUSD positions. A weaker-than-expected Australian employment report sent AUDUSD plunging while increasing fears of another rate cut. USDJPY couldn’t break 120.30-50 and sank on a report that the BoJ thought a falling JPY would hurt consumer sentiment.

EURUSD seems to have shrugged off news of a Russia/Ukraine ceasefire while the EU/Greece negotiations are still on-going. The Bank of England’s Quarterly Inflation Report was seen as hawkish and GBPUSD rallied strongly.

USDCAD technical Outlook

The intraday USDCAD technicals are bearish following this morning’s break of support at 1.2540.  The plunged halted at the next major support level of 1.2440, representing a series of bottoms following the January 15 BoC rate cut. Additional support is seen at 1.2420 representing the uptrend from the end of December, which if broken will extend losses to 1.2115.  For today, USD support in the 1.2420-40 area should hold.

Today’s Range 1.2440-1.2540

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USD/CAD never really recovered from yesterday’s very dovish sounding speech by Bank of Canada Deputy Governor, Carolyn Wilkins.  She stated that “Given the destructive recession Canada experienced, measures of economic slack that focus on the labour market show greater unused capacity than broader measures do”. USDCAD traders interpreted that line to mean that another rate cut was not just on the table but on the horizon as well and USDCAD soared.  At the same time, oil traders were rethinking their conclusion that oil prices were heading higher. The US Energy Institute (EIA) issue a report projecting US oil supply growth until 2020. The slide in WTI prices added fuel to USDCAD demand. Soft oil prices and negative Canadian dollar sentiment will keep USDCAD in demand today.

Overnight, Japan was closed for a holiday but that did not stop USDJPY climbing to levels not seen since the beginning of the year. AUD and Kiwi both drifted lower on softer commodity prices. In Europe, EURUSD went nowhere ahead of the EU leaders summit on Greece. A press conference occurs sometime around 2 pm EST.

USDCAD technical Outlook

The intraday USDCAD technicals are bullish while trading above 1.2590 with a break above 1.2635-40 extending gains to 1.2730. A move below 1.2570 targets 1.2530 and then 1.2480. The short term uptrend remains intact above 1.2380

Today’s Range 1.2610-1.2680

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One of the reasons we’ve all heard of George Soros is that back in 1992 he pulled off an epic financial coup by “breaking” the Bank of England. At the time the UK was trying to maintain a loose peg with the German Deutsche Mark, despite the fact that the two countries had very different rates of inflation (UK’s high, Germany’s low). 

To Soros’ practiced eye, this imbalance was clearly unsustainable and would eventually force the UK to devalue its currency to reflect the fact that it was living beyond its means and printing way too many pounds. Soros placed a big bet against the pound and sat back while the fundamentals won out. When Britain gave in and devalued, Soros made a billion dollars and became a household name.

Ever since, currency traders have dreamed of such conjunctions of government mismanagement and central bank cluelessness, hoping for their own Soros-level killings. But during the past couple of decades such sure things have been rare because currencies have floated more or less freely, which prevented huge imbalances from building up. 

Now, however, thanks to the mess that is the eurozone and several other countries’ ill-advised dollar pegs, the world is once again a target-rich environment for speculators. The Swiss, for instance, have been going a little crazy trying to decide whether and/or how to peg the franc to the euro. And China, which runs a loose peg to the dollar, is looking like it might have to adjust its thinking in the not too distant future. 

But right now the juiciest target is Denmark. A generally well-run country, it finds itself on the wrong side of the currency war, with the European Central Bank actively devaluing the euro against which the Danish krone is pegged. Capital has been flowing into Danish bonds seeking the relative safety of low inflation and stable state finances, which is pushing up the value of the krone. Maintaining the peg thus requires the Danes to create a lot of new kroner and use them to buy euros.

A soaring supply of national currency is inherently inflationary and destabilizing, which is the opposite of “well-run”. So just as the Swiss did last year, the Danes are both promising to maintain the peg and stressing out over the cost of doing so. Now the speculators smell blood: 

Speculation Against Danish Euro Peg Proving Relentless

(Bloomberg) — Less than a week after Denmark resorted to its deepest rate cut ever amid historic currency interventions, forward rates suggest some traders and investors still aren’t convinced the central bank can save its euro peg.

SEB AB, the largest Nordic currency trader, says capital flows into AAA-rated Denmark forced the central bank to dump about $4.6 billion in kroner in the first three days of February alone, almost a third the record amount it sold in all of January. Nordea Bank AB, Scandinavia’s biggest lender, says Denmark will need to deliver another 25 basis-point cut to fight back demand for kroner, bringing the benchmark deposit rate to minus 1 percent.

“The pressure on the krone hasn’t eased yet,” Jens Naervig Pedersen, an economist at Danske Bank A/S in Copenhagen, said by phone. “We can see from the forward rates that the market views the current upward pressure on the krone as the greatest ever.”

Governor Lars Rohde addressed speculators last week in what he characterized as a verbal intervention to persuade them he won’t let the krone’s peg to the euro collapse. Such a scenario is “unthinkable” and the central bank will do “whatever it takes” to avoid it, he said after delivering a fourth rate cut in less than three weeks.

Denmark’s largest institutional investor, ATP, sent a clear message of trust in the peg the same day, revealing it hasn’t bothered to hedge its $110 billion in assets against the possibility that the nation’s currency regime might break.

Make no mistake, the Danes are the victims here. They’re behaving the way a country should behave, with an eye to long term stability. But the rest of the world — the eurozone in particular — is so indebted that its only choice is to inflate or die. 

Which leaves solid countries like Denmark and Switzerland with a similar choice: inflate and throw decades of prudent management out the window, or watch their currencies soar against those of a profligate world, causing their export sectors to go extinct and their economies to slip into Depression. 

The speculators, meanwhile, are not the villains in this story. They’re just pointing out the truth with their capital. And their honesty will be rewarded very soon.

FX markets were subdued in Asia and livelier in Europe but still lacking the chopping, churning volatility of a few weeks ago. In fact, they were almost normal. Softer than expected China CPI data raised the risk of another PBoC rate cut which gave AUDUSD a boost, a move that was not sustained.

The European session took a shine to US dollars and bought them across the board mostly on uncertainty surrounding Greece. The Greek government wants the Eurozone to lend them another €10 billion while they discuss stiffing the eurozone on the outstanding €250+ billion that is owing.

USDCAD started the day near minor support at 1.2450 but has since rallied to the day’s highs (currently 1.2515) without any clear driver for the move. There may not have been a clear driver, but USDCAD sentiment is bullish due to expectations of poor economic growth and a renewed decline in oil prices. A Citibank forecast of $20/bbl for WTI didn’t help.

USDCAD technical Outlook

The intraday USDCAD technicals are modestly bullish while trading above 1.2450 with the overnight spike to 1.2494 snapping an intraday downtrend. A move above 1.2495-00 targets 1.2540 while a break of support at 1.2450, risks a return to 1.2420

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