VBCE Weekly Market FX Update - November 24-28 2014

November 24-28 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 global 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, Dec. 3rd, 2014

USDCAD spot rate: 1.1350 - 1.1355 (AS AT 8:15AM PST)

RANGES:	Asia:	1.1390	to	1.1412
	Europe:	1.1374	to	1.1402
	North America:	1.1345	to	1.1418

 

Technical Support / Resistance:

S2	S1	R1	R2
1.1230	1.1315	1.1465	1.1549

Key Economic Data Releases:

-Bank of Canada interest rate decision: unchanged @ 1%
 http://www.bankofcanada.ca/2014/12/fad-press-release-2014-12-03/

-U.S. ADP employment change: 208,000 (exp. 221,000)

-U.S. non-farm productivity Q3: 2.3% (exp. 2.4%)

-U.S. Markit services PMI: 56.2 (prev. 57.1)

-U.S. ISM non-manufacturing index: 59.3 (exp. 57.5)

Key Event Calendar:

DATE	CANADA	U.S.A.
Dec. 4	Ivey PMI	Initial jobless claims
Dec. 5	Int’l merchandise trade, employment	Trade balance
	change, Unemployment rate	Non-farm payrolls, unemployment rate

After having fallen from 1.1459 down to 1.1314 Monday, USDCAD climbed back to 1.1424 before settling near 1.1394 for the balance of yesterday’s North American session. Overnight, USDCAD dipped to 1.1374 before climbing to 1.1418. The 7:00am Bank of Canada announcement was more hawkish than expected and the CAD is the best performing currency this morning. USDCAD has fallen to 1.1345 with bounces limited to 1.1360 thus far. The Bank noted higher than expected inflation levels and that exports are benefitting from a strengthening U.S. economy. Also, “Stronger exports are beginning to be reflected in increased business investment and employment.” The next major event risk comes Friday when job numbers are to be released. Canada is expected to add 5,000 jobs after having added 43,100 jobs prior. The U.S. is expected to add 232,000 after having added 214,000 jobs previously. The unemployment rate in Canada is expected to tick up to 6.6% from 6.5%. The U.S. unemployment rate is expected to remain steady at 5.8%. Currently, the TSX and the DJIA are up 0.88% and 0.11% respectively. EURCAD is down 1% trading between 1.3977 and 1.4136. GBPCAD is unchanged trading between 1.7792 and 1.7903. JPYCAD is down 0.75% trading between 0.00949 and 0.00957. Gold is up 1.3% trading between $1,194 and $1,215USD/oz, silver is up 0.54% trading between $16.23 and $16.58USD/oz, while oil is up 1.11%, trading between $66.91 and $68.19.

 

 

 

 

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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