VBCE Weekly Market FX Update - November 17-21 2014

November 17-21 2014

 

 

It was very quiet in the currency markets last week until Friday that is, when it received a double shot of adrenaline. The first shot was by ECB President, Mario Draghi, speaking at a banking conference in Frankfurt. Draghi strongly signaled that he and his colleagues were preparing a new round of powerful monetary stimulus to jolt the flagging Eurozone economy. Draghi said the ECB would “do what we must to raise inflation and inflation expectations as fast as possible.” If the bank’s current policies, which include some purchases of corporate bonds, do not end the threat, Mr. Draghi said, “we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases.” This speech was reminiscent of a speech Mr. Draghi gave in July 2012, when he said the central bank “is ready to do whatever it takes to preserve the euro. In a nutshell, Draghi and the ECB are ready to rev up QE at its next meeting on December 4th.

 

The second shot of adrenaline came from an unlikely source, the Chinese central bank. It was as if all the central bankers were all in one room and the Chinese jumped up and down yelling it’s my turn, it’s my turn. Yes it is your turn, what kind of monetary Kool-Aid would you like to offer? And the Chinese decided to cut interest rates. This was the first cut in China’s benchmark interest rates in two and a half years, which must mean that things have really deteriorated in China. We say this because the Chinese have resisted cutting rates in the last couple of years in favour of reducing the

required reserve ratio on banks. China’s move along with Draghi’s signal helped spur a rally in globa equity markets, oil, gold, the USD, and the CAD.

 

The US dollar index was able to break above the downward sloping trend line and managed to rally to a four and half-year peak, which we have outlined on the monthly chart. As you can see from the long- term chart, the US dollar index is in a midst of a superb bull market with the path of least resistance continues to be higher. This bull market is showing no signs of slowing so buying the dibs will continue to be the best strategy until it’s not.

 

VBCE Daily Foreign Exchange Update for Wednesday, Nov. 26th, 2014

USDCAD spot rate: 1.1235 - 1.1240 (AS AT 8:28AM PST)

RANGES:	Asia:	1.1250	to	1.1271
	Europe:	1.1253	to	1.1298
	North America:	1.1230	to	1.1270

Technical Support / Resistance:

S2	S1	R1	R2
1.1192	1.1230	1.1300	1.1370

Key Economic Data Releases:

-U.S. core personal consumption expenditure price index y/y: 1.6% (prev. 1.5%)

-U.S. durable goods: 0.4% (exp. -0.6%) ex transportation: -0.9% (exp. 0.5%)

-U.S. initial jobless claims: 313k (exp. 288k)

-U.S. Chicago purchasing managers index: 60.8 (exp. 63.0)

-U.S. consumer sentiment index: 88.8 (exp. 90.0)

-U.S. personal income: 0.2% (exp. 0.4%) personal spending: 0.2% (exp. 0.3%)

-U.S. new home sales: 0.458m (exp. 0.472m) % change m/m: 0.7% (prev. 0.4%)

-U.S. pending home sales m/m: -1.1% (exp. 0.5%)

Key Event Calendar:

DATE	CANADA	U.S.A.
Nov. 27	Current account (Q3)
Nov. 28	GDP, raw material price index

Yesterday, USDCAD traded from 1.1278 up to 1.1316 before falling to 1.1232. The pairing bounced to 1.1260 and held in a 1.1240 – 1.1255 range for the balance of the session. Canadian retail sales were better than expected while the Organization for Economic Cooperation and Development (OECD) mentioned in its annual economic outlook that the Bank of Canada should raise its key rate in May of 2015. For the past several months, the Bank of Canada has downplayed the need to raise rates attributing recent inflation to transitory factors. Overnight, USDCAD traded from 1.1250 up to 1.1298 before falling back to test 1.1230 this morning. This level has held for the 2ND straight day followed by a minor bounce to 1.1240. Currently, the TSX and the DJIA are down 0.25% and 0.08% respectively. EURCAD is unchanged trading between 1.4020 and 1.4088. GBPCAD is up 0.30% trading between 1.7678 and 1.7787. JPYCAD is unchanged trading between 0.00954 and 0.00959. Gold is down 0.22% trading between $1,195 and $1,201USD/oz, silver is up 0.26% trading between $16.55 and $16.69USD/oz, while oil is down 0.47%, trading between $73.33 and $74.42.

Sources: Reuters, Bloomberg, FXStreet, RBC Capital Markets, Bank of Canada, U.S. Federal Reserve, CNBC, Forexlive

 

Please contact the VBCE trading desk at 604-685-1008 for more information on our foreign exchange and wire payment services. Updates by stevebrown@vbce.ca 

The information contained in this report has been compiled by our VBCE traders from sources believed to be reliable, but no representation or warranty, express or implied, is made by VBCE as to its accuracy, completeness or correctness.  All opinions and estimates contained in this report constitute VBCE’s judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility.  Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice.  This material is prepared for general circulation to clients and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it.  This report is not an offer to sell or a solicitation of an offer to buy any currency or precious metals.  Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur.  To the full extent permitted by law neither VBCE nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein.  No matter contained in this document may be reproduced or copied by any means without the prior consent of VBCE.

 

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