USDCAD Overnight Range (including post payrolls) 1.2385-1.2495

The post payrolls pyrotechnics’ were spectacular and the Loonie was dazzled, jumping up and down like cold feet on hot sand. Canada posted a whopping 35.4 gain in jobs, greatly surpassing the mere 5K predicted and a huge jump from last month’s 11.3 K loss. USDCAD plunged to 1.2385 from 1.2430 and then roared straight up to 1.2595 because the US data was even more impressive. Nonfarm payrolls rose 257K, average hourly earnings were higher and November and December data were revised higher by another 147K.

Loonie’s head still spinning.

USDCAD traders don’t know whether they are coming or going this morning.The impressive rally from 1.2385 topped out at 1.2495 and it has retreated steadily. In fact USDCAD is sitting pretty much where it started before both employment reports.

WTI and Data at odds

The headline Canadian employment number is misleading as all the gains were part-time. In addition, recent history questions the accuracy of this Stats Canada data. On the other hand, WTI enjoyed an impressive rally yesterday and it is higher today ($51.61/bbl). Further gains in oil will likely put even patient long USDCAD positions to the test and result in a test of support at 1.2320.

Bullish CAD data at odds with US report

The mix of the better than expected Canadian employment report (headline number) and oil price gains have given new found life to the beleaguered Loonie.Unfortunately, getting bearish USDCAD on this mix at this level (1.2445) may be as dumb as passing on 2ndand 1 in a super Bowl game with Marshal Lynch on your team and on the field.The reason is simple. The US data was strong and with the large revisions, way better than expected.The added bonus was the rise in average hourly earnings. Taken together, it strengthens the case for a midyear US rate hike.

USDCAD technical Outlook

The intraday USD technicals are bearish USDCAD while trading below 1.2480 but needing a break below 1.2420 to extend losses to 1.2380.  A break of 1.2380 would lead to a test of the short term uptrend line currently at 1.2320.  A move above 1.2480 targets 1.2580

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With Crude giving up its early weekly gains yesterday and falling over 8% from its recent high,coupled with the ECB announcement of the termination of its “relaxed” treatment of Greek debt as collateral for loans from the ECB,led to a flight quality bid,weakness across risk assets and generally stronger USD dollar.However,this morning saw the European Commission raising its assessment of Eurozone growth for 2015 to 1.3%. The initial knee jerk reaction to the ECB Greek collateral decision has subsided as Greek banks will sill have a life line to funding through the Emergency Liquidity Assistance program of the ECB.Together, these developments have given a bid to the Euro currency(1.1429,+.77%).Equity markets across Europe are trading better and crude is near its best levels for the day up 1.28% ( 49.10), while the USD is giving back some yesterday’s gains.This mornings, Bank of England meeting saw no change to monetary policy.Canadian Balance of trade ( -1200M prev -644M) is to be released this morning along with  the weekly Initial Jobless and continuing claims data in the US.

CAD/US Range 1.2586-1.2508 Currently 1.2535 RES 1.2641 1.2718 supp 1.2445 1.2317 

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The USD weakened versus most pairs yesterday and there was a general increase in risk appetite across asset classes.The brighter outlook may have been attributed to a less confrontational  tone being portrayed by Greek officials as relates to its debt negotiations. A cut in the required reserve requirement by the Peoples Bank of China on the back of tighter liquidity conditions follows on the back of a surprise interest rate cut by the Reserve Bank of Australia earlier in the week.Surprisingly,after a very volatile session which saw new lows in the Australian dollar,it managed to finish higher than before the rate cut. UK and European PMI data and retail sales data released today,were generally positive and supported  the recent strength in the EUR & GBP. This morning brings ADP employment report in the US and PMI release in the US & Canada.

Strength in crude prices and general USD weakness supported a very strong performance in the Canadian dollar which traded as low as 1.2352 yesterday. With crude weaker by 3% this morning the loonie is under some pressure.

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This week sees announcements on monetary policy by a number of central banks,in particular the Reserve Bank of Australia (Feb 2nd) and the Bank of England (Feb 5th).The beginning of the month also brings the release of Purchasing Managers Index data on key sectors ( manufacturing,construction and services) of the members of the global economy.The first off,was China were manufacturing PMI disappointed at 49.8. Eurozone PMI releases were generally better than expected with the exception of Germany which was reported at 50.9. The week finishes with the release of employment data for January for the US economy.

The biggest mover in the FX space overnight was the Swiss Franc (-1.24%) after reports surfaced that the SNB may be intervening in the market and was targeting the EUR/CHF somewhere rate between 1.05-1.10 This morning will see the release of Personal Consumption Expenditure (PCE) index data, PMI and Personal income and spending & construction data for the US. Canadian RBC PMI data for January is expected at 52.27 ( previous 53.9).The Canadian dollar has benefitted overnight from a strong rally in crude,which at one point was trading through $50 a barrel,currently at $48.89 (+1.66%)

CAD Range 1.2773-1.2654 Currently 1.2683 RES 1.2814 1.2892 SUPP 1.2627 1.2523

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Business Insider just posted a Deutsche Bank chart that illustrates the difference between life under the Classical Gold Standard and today’s “modern” forms of money. It’s for the UK only but is a pretty good representation of the world in general:

For the first four hundred years depicted here, money was gold and silver — the quantity of which rose at roughly the same rate as the human population. Prices during that time fluctuated, but only modestly by today’s standards, and they always returned to more-or-less the same level. In other words, money held its value for not just years but centuries. It was a fixed aspect of the financial environment and was therefore not a tool of economic policy. Governments and individuals had to adapt to unchanging money rather than forcing money to adapt to political circumstances. 

A phase change occurs in the 20th century when the US created the Federal Reserve and World Wars I and II placed survival above monetary stability for most of Europe and Asia. Violent swings in the value of money became the norm, and with the subsequent worldwide adoption of fiat currencies — which governments can create at will — volatility has soared. 

Clearly, something bad has happened — and just as clearly something really bad is coming. The question is what. Inflation and deflation both have their articulate proponents, many of whom (adding yet another layer of complexity) expect both but disagree on the order in which they’ll occur. See here, here, here, and here. This is a fascinating debate, with huge implications for personal financial planning. We all have to choose a side with our investments, and the risks and potential rewards have never been higher. 

The follow-on question is also fascinating: What do we use for money once fiat currencies inevitably fail? Will central banks adopt some version of Milton Friedman’s computer that increases the supply of base money by a pre-set amount each year, removing the temptation to inflate? Will cyber-currencies like bitcoin turn out to be secure enough to gain worldwide acceptance, eliminating the need for underlying physical reserves? Is a high-tech gold standard possible, in which physical bullion backs an electronic currency that circulates in place of unbacked fiat currencies? Again, this is interesting in its own right but crucially important for everyone with money to invest. Stay tuned.