Ο ανήφορος φέρνει κατήφορο

With his back to the wall, the Prime Minister of Greece, Alexis Tsipras, did what every politician in his position would do – he made a political move by calling for a snap referendum to be held on July 5. The question to be put before voters is whether or not the country is willing to submit to the conditions being demanded by the International Monetary Fund, European Union and European Central Bank. This may be a moot point because the IMF is owed a payment on June 30th; this will not be made and opposition leaders may call for a no-confidence vote. If successful, it would cause a new government to be formed or the dissolution of the government and new elections. As you can see there are still many unknowns at play here.

What we do know is that the Greek banks have no more money, so a bank holiday and capital controls was implemented yesterday (Monday, June 29th). For the rest of the Eurozone, we are sure that the key leaders of each country will have that Boomtown Rats song playing in the back of their heads – “I Don’t Like Mondays.” We can see headline already – “Black Monday”, “Lehman Weekend”, “Opa Oops”. As we write this commentary, trading has opened and the Euro has gapped down.

Lest we forgot, the other big news was that on Friday out of China. China’s central bank cut reserve requirements up to 50 bps and cut the benchmark one-year deposit and lending rates by 25 bps. Strap on your seat belts because this is going to be humdinger of a week!
What are the Capital Controls in Greece?

During the summer months, Greece isn’t typically known for high-stakes drama, but in the last few days, negotiations between Greece and its European paymasters indicate that the country’s economic crisis is approaching a breaking point. Briefly summing up the banking crisis, deposits fell to an 11-year low in May and have lost nearly 15% of their value since November. Stoking the flames is the fact that wealthy Greeks pulled their money out of Greek banks as soon as the Leftist Syriza government came to power in January with the promise to end austerity. With tomorrow’s bail-out expiry looming, more and more ordinary citizens have started queueing up at ATM’s to pull out their savings in fear of a full-blown banking collapse.
The Greek government implemented a number of measures in the early hours of Monday to keep money in the financial system. Here is a summary of the capital controls that were implemented to protect the financial system:

 From Monday, June 29, 2015, banks will remain closed up to and including Monday, July 6;

 Deposits are fully safeguarded;

 The payment of pensions is exempted from the restrictions on banking transactions. Management of credit institutions will announce how these will be paid;

 Electronic transactions within the country won’t be affected. All transactions with credit or debit cards and other electronic forms (web banking, phone banking) can be conducted as normal;

 Prepaid cards may be used to the limit existing before the beginning of the bank holiday;

 From midday June 29, ATMs will operate with a daily cash withdrawal limit of 60 euros per card, which is equivalent to 1,800 euros a month;

 Foreign tourists can make cash withdrawals from ATMs with their cards without restrictions provided these have been issued abroad; and

 A special Committee to Approve Bank Transactions has been established at the State General Accounting Office in cooperation with the Finance Ministry, the Bank of Greece, the Union of Greek Banks and the Capital Markets Commission. This committee will deal with applications for urgent and imperative payments that can’t be satisfied through the cash withdrawal limits or by electronic transactions (e.g. payments abroad for health reasons). Wages paid electronically to bank accounts aren’t affected.

The question becomes, will the capital controls affect the outcome of the referendum? It’s hard to dissect the psyche of the average Greek citizen at the moment. Waking up in the morning to find out that you can only take out 60 Euros per day will certainly have a big impact. But if the Greeks think that the Europeans are cutting them off, it could push them to vote “No” and reject the bail-out deal. On the flipside, the prospect of life under capital controls could scare many into voting “Yes” out of fear of things to come should they leave the Euro.
Hold on to your hats – HUGE week ahead!

Oh yes, before we sign off, you may be wondering about the title of this piece, Ο ανήφορος φέρνει κατήφορο, which in Greek means the uphill is followed by a downhill. It’s the equivalent of what goes up, must come down.

More Cowbell?

Surprisingly, the biggest story of the week wasn’t Greece but the USD and the Fed. Federal Reserve Chairwoman Janet Yellen emerged from a two day policy meeting to declare that the FED NEEDS “MORE DECISIVE EVIDENCE”. More cowbell? Are you kidding?! It seems that every time the market’s perception gets closer to thinking the Fed is about ready to finally raise interest rates the Fed pulls the rug out from underneath that train of thought. After more than 6 years of emergency monetary policy, which included QE1, QE2, QElite, QE3 – all under a zero interest rate policy – what is it that the Fed is fearing?

The USD took it on the chin (more on this later) as it appears the market has lost complete faith in the Fed. For example, let’s take a look at the Fed’s revised growth rate for 2015. It downgraded 2015 GDP to 1.8-2.0% from 2.3-2.7%, which had already been downgraded in March. Doing the math, Q1 came in at 0.7% and the Atlanta Fed GDP Now model has Q2 at 1.9%. Thus, to get to 2.7% for the year means that both Q3 and Q4 must come in at 4%. This may be a tall order, but if it happens then we should expect the Fed to raise interest rates.

Now for the USD, the reaction after the Fed announcement was swift and fast. The US dollar index is not on firm ground on the charts. The 50-day moving average has crossed the 100-day moving average, which is known as a death cross in technical analysis. As you can guess from the name this is not a positive development, as it indicates a bear market is on the horizon. The momentum indicators are also flagging.

On the fundamental side, the America’s trading partners are heading in the opposite direction. Japan has signaled that it no longer wants a weaker yen. The UK looks to have regained its legs after the Scottish referendum, the federal election, and a central bank that appears comfortable in raising interest rates in mid-2016. Europe looks like it has escaped deflation and is slowly on track for positive growth despite its problems with Greece. As for China, it is starting to exhibit some green shoots – just last week China’s business indicator reached its highest reading in a year at 53.5 from the 49.7 it registered in May.

Salvation to Catastrophe: What might happen to Greece

We found this excellent article on Bloomberg, which we thought is worth a read. You can find the Original article here

The Greek saga has haunted policy makers for more than five years. Now talks are deadlocked, banks are on life support and time is running out. With financial doomsday drawing ever closer in Athens, everyone from creditors and investors to depositors is increasingly focusing on what's next.
Some things are clear:

 Greece owes the International Monetary Fund about $1.7 billion this month.

 In July and August, the European Central Bank is due almost 6.8 billion euros ($7.6 billion).

 The euro-area backed bailout program expires on June 30, with creditors refusing to release up to 7.2 billion euros in remaining funds before Athens complies with belt-tightening conditions.

With time running out to close a deal, the German government has begun planning for a Greek default, according to Bild newspaper. If you're waiting for a clear resolution to the country's status in the 19-nation monetary union, you may wait a long time. Adopting the euro was always supposed to be a one-way ticket, so there is no legal precedent or political roadmap for an exit.
Next steps for Greece range from retaining the euro to catastrophic divorce. Half-measures are also on the cards, such as having multiple currencies circulate, with aid recycled to repay foreign-currency debts. Equally unclear is who would tell the world - and how - that Greece has entered an economic afterlife. Possible messengers include Greek Prime Minister Alexis Tsipras, European Central Bank President Mario Draghi, European Union President Donald Tusk and European Commission President Jean-Claude Juncker. There could be others.
We asked economists, investors and former policy makers what could happen next – and how it might unfold.

Scenario A – Grexit Avoided

Tsipras, whose Syriza party won January elections promising to undo the tough terms of the bailout loans, capitulates to creditor demands. Faced with a choice between effective expulsion from the euro area or implementing austerity in exchange for loans, Tsipras takes the cash. The ECB maintains its support of the financial system.
While aid flows, the government's days are numbered as its most hardline supporters mutiny. A new coalition is formed with backing from the pro-European opposition and Syriza's moderate flank – or elections are called. Greece's continued euro membership is ultimately secured as new loans are used to repay the ECB and the IMF and the country's coffers are replenished. Greece gets easier repayment terms on bailout loans. This helps tame the popular backlash against the new wave of fiscal measures. However, the cuts attached to the agreement suppress economic output, delaying Greece's recovery from the longest recession on record.

Scenario B – Hotel California

Greek Finance Minister Yanis Varoufakis has described euro membership by using a lyric from the famous 1976 Eagles song: “You can check out any time you like, but you can never leave.” Tsipras might fail to strike a compromise acceptable to the German government, Communist factions of his Syriza party, and stakeholders in between. Somehow, though, he manages to keep Greece officially in the euro.
Bailout loans – Greece's only source of funding – remain stalled. With Europe's political leaders unwilling to proceed, the ECB rations Emergency Liquidity Assistance, the lifeline keeping Greek banks afloat.
That requires the imposition of capital controls – as there isn't enough cash to meet demand – following a bank holiday. We're calling the two possible outcomes from here “somersault” and “check out.”
Scenario B1 – Somersault
Capital controls mean that limits are placed on withdrawals and transfers. The dramatic consequences force Tsipras to compromise. Opinion polls show that most Greeks – between two-thirds and three-quarters of the population – want to stay in the euro area “at any cost”. “You can check out any time you like, but you can never leave.”
Tsipras forges a new coalition with opposition lawmakers of pro-European parties. A referendum carried out amid capital controls and with banks shut, gives him a mandate to reverse course. A unity government is formed and Greece remains in the euro, but not before the disruption triggers a new recession.

Scenario B2 – Checking Out

With banks shut, the political situation deteriorates and a popular uprising intensifies, with Germany targeted as the country's main antagonist. Polls show a swing in favor of breaking from the euro area.
Capital controls give the government the space and time to print either a new currency or IOUs for domestic payments. The new scrip quickly plunges, reflecting the weak fundamentals of an economy that has shrunk by about a quarter since 2008.

Euro-area governments give Greece a “sweetener,” a parting-loan in hard currency. The rationale is to avert total economic collapse, which would create a failed state in a strategically critical region.
Greece’s debt to public entities is restructured, providing for the repayment of loans to the IMF, either through the euro area’s crisis fund or from the departure credit. Greece remains shut out of debt markets. Most Greek companies and banks default. Some bank deposits are seized to recapitalize a shattered financial system, or redenominated to the new legal tender equivalent. The sovereign debt
restructuring of 2012 has already ensured that the state won’t have to pay principal on most of itsexisting loans to private investors and the euro area for the next few years and until the economy stabilizes. Both the new paper and euros circulate. Greece may not officially leave the euro zone – the door is open to a return in good standing – though the country sputters in a financial purgatory.

Scenario C – ‘C’ for Catastrophe

Greece separates from the euro area in a messy default, amid demonstrations and deepening misery for most, with the government blaming everything on the Germans. No help is provided to support a new currency and to keep servicing bonds and IMF debt. That triggers cross-default clauses to all creditors. The government and banks collapse, meaning that years will be needed before a new structure emerges. Greece's economy plunges into a second depression. The blow from the biggest default in the history of capitalism drives Europe back into a recession and heaps pressure on vulnerable euro countries such as Italy.

Bad blood leads to Greece’s departure from the European Union. The idea that the euro is irreversible is thrown into question, rattling global markets. The economic implosion paves the way for extremists, from either the left or the far right, to take power. Those who can, flee the country. The tumult casts doubt on Greek membership in NATO. A new – and unstable – government turns to Russia for support, providing a Mediterranean outpost for Vladimir Putin.

Water Cooler Talk

　

The GBP snapped a three week losing streak on its way to the top of the leader board. Not even a ratings downgrade from stable to negative in the UK’s credit rating by Standard & Poor's over the UK’s plans for an EU referendum was able to put a dent in sterling’s performance. The loser for the week was the NZD as it was crushed by the central bank’s 25 bp interest rate cut and its dovish insistence that further easing may be needed if future economic data is weak.

On to a topic we’ve discussed on and off over the past 12 months, currency wars. We know that there are people who doubt that a currency war is underway, but it appears that there are two types of currency wars going on right now based on media reports. First, last week began with comments about the USD being too strong that were attributed to President Obama by an unnamed French official. The comments were later denied by the President. Two days later, Bank of Japan Governor Haruhiko Kuroda suggested that the yen was unlikely to fall further on a real effective exchange rate basis because it was already "very weak". Yes we know that the purpose of the currency war is to weaken your currency in order to steal export market share from other countries and with this in mind, Kuroda’s.

comments were bullish for the yen, not bearish. Let’s keep in mind that he can afford to say this considering that the yen has moved from the 78 level to the 126 level in about 2.5 years, which works out to be about a 60% decline in the yen versus the USD. Two days later it was German Chancellor Merkel’s turn. She suggested that too strong of a euro would impede reforms in Spain and Ireland. Yup, no currency war going on here. Move along!

Second, the other currency war underway is the move away from U.S. hegemony (USD as a reserve currency). This can be seen by the setting up of parallel institutions like the IMF and World Bank led by China (BRICS Bank and Asian Infrastructure Investment Bank), and the accumulation of gold reserves by China and other central banks; and gold repatriation by certain western governments to bring home their gold stored outside their home country in places like New York and London.

These are interesting times indeed. Next week, keep an eye on the FOMC meeting, Greece, Deutsche Bank, and the Ukraine.

Greece Edges Closer to Default

 

Original article Found Here

The latest attempt to end the deadlock between Greek and EU officials in Brussels failed on Sunday. The negotiations centered on whether Greece would meet the EU's demands to make spending cuts worth €2bn (£1.44bn) in order to secure a deal that will unlock vital bailout funds. "European Commission President Jean-Claude Juncker made a last attempt this weekend to find, via personal representatives and in close liaison with Commission, ECB and IMF experts, a solution with Prime Minister Alexis Tsipras that would allow for a positive assessment in time for the Eurogroup on Thursday 18 June," the Commission said.

"While some progress was made, the talks did not succeed as there remains a significant gap between the plans of the Greek authorities and the joint requirements of Commission, ECB and IMF in the order of 0.5-1 percentage points of GDP, or the equivalent of up to 2 billion of permanent fiscal measures on an annual basis." The Commission said that Greece's proposals were "incomplete", which made negotiation difficult. The talks fell apart after just 45 minutes.

The failure to reach a deal on Sunday leaves a final decision on a possible default to Eurozone finance ministers. This meeting will take place on Thursday, the European Commission said, and will be a last chance saloon for Greece if it wants to avoid a default. A Commission spokesman said: "President Juncker remains convinced that with stronger reform efforts on the Greek side and political will on all sides, a solution can still be found before the end of the month."

 

 

The IMF's chief economist Olivier Blanchard wrote in his blog on Sunday that, "Greek citizens, through a democratic process, have indicated that there were some reforms they do not want. We believe that

these reforms are needed, and that, absent these reforms, Greece will not be able to sustain steady growth, and the burden of debt will become even higher." Pensions remain a sticking point for Greece, with Athens refusing to give in to further cuts. "These are tough choices, and tough commitments to be made on both sides," said Mr Blanchard.

Below are the key hurdles Greece faces in the coming weeks:

June 15: European Central Bank president Mario Draghi to give quarterly testimony at European Parliament; Greece likely to figure.

June 16: Austrian Chancellor Werner Faymann visits Athens

Greek PM Alexis Tsipras scheduled to fly to Russia - expected to meet Russian President Vladimir Putin at St. Petersburg International Economic Forum, June 18-20.

June 17: Governing Council of the ECB non-monetary policy meeting in Frankfurt

Greece to sell 1 billion euros of 3-month T-bills.

June 18: Eurogroup meeting in Luxembourg

European Council President Donald Tusk has signaled this might be the day when the currency bloc decides Greek "game is over". General Council meeting of the ECB in Frankfurt.

June 19: EU finance ministers meeting. Greece needs to refinance 1.6 billion euros in T-bills. Greece needs to service about 85 million euros in interest on bonds held by the ECB.

June 25-26: European Union leaders Summit in Brussels.

June 30: Greece’s euro-area-backed bailout extension expires

Total payments of more than 1.5 billion euros to the IMF come due, after decision to bundle tranches due earlier in June

July: About 1 billion euros in interest payments due

Bulk of amortization and interest payments due on July 18-20 on bonds held by the ECB

July 1: Governing Council of the ECB non-monetary policy meeting in Frankfurt

July 8: Greece to sell 26-week bills

July 10: Greece needs to refinance 2 billion euros in T-bills

July 13: IMF loans repayment totaling about 450 million euros due. Eurogroup meeting

July 14: Greece needs to repay 11.67 billion Japanese yen (about $93 million) in yen loans

July 16: Governing Council monetary policy meeting of the ECB in Frankfurt

July 17: Greece needs to pay about 71 million euros in interest on the 3-yr bond it sold in 2014

Greece needs to refinance 1 billion euros in T-bills

July 20: Greece needs to repay about 3.5 billion euros in bond redemptions; bonds held by the ECB

July 31: Moody’s due to review Greece’s sovereign debt

August: 600 million euros in interest payments

Includes an 80 million euro payment to the European Financial Stability Facility

August 1: Interest on IMF loans totaling about 175 million euros; payment due by August 5

August 5: Governing Council of the ECB non-monetary policy meeting in Frankfurt. Greece to sell 26-week bills

August 7: Greece needs to refinance 1 billion euros in T-bills

August 14: Greece needs to refinance 1.4 billion euros in T-bills

August 20: Greece needs to repay about 3.2 billion euros in bond redemptions; bonds held by the ECB

Dinosaurs!

This has nothing to do with FX or the economy in general, but it’s information that we think will make you feel like Cliff Clavin (if that’s your life aspiration) and the most popular person in your office today.

Jurassic World just had a massive opening weekend where box office receipts topped $511 million worldwide. In case you’re having a little trouble grasping this number, let’s put it into perspective.

According to World Bank figures from 2013, Jurassic World’s total revenue from June 12 to 14 is greater than the annual GDP of the following countries:

1. Tonga — $466.3 million

2. Federated States of Micronesia — $316.2 million

3. Sao Tome and Principe — $310.7 million

4. Palau — $247 million

5. Marshall Islands — $190.9 million

6. Kiribati — $168.95 million

7. Tuvalu — $38.3 million

  

The Dust Has Settled

 

 

Canadian employment surged last month, as the economy added the most jobs in over seven months. The best part of this news is that employment came everywhere, which is exactly what policymakers like to see. Canada recorded a net gain of almost 59K jobs while analysts had been expecting a net gain of a 10K with the full- and part-time almost evenly split (31K and 28K respectively). The unemployment rate stayed the same at 6.8%. After experiencing dramatic declines last year due to plummeting commodity prices, employment in Canada finally looks to be trending higher. More good news is that manufacturing jobs outside the commodity sector buoyed the employment report.

 

According to Bloomberg, "Canada added six times as many jobs in May as economists predicted on the biggest manufacturing gain in four years -- the kind of progress the central bank says is needed to foster a

recovery from the shock of lower oil prices. The strength counters other recent setbacks – shrinking Q1 output, record trade deficits, slow inflation – and supports Bank of Canada Governor Stephen Poloz's view that momentum is shifting to non-energy companies as the oil industry cuts investment and jobs."

 

It’s important to note that some of gains in May were driven by self-employment, but paid employment was still up by a healthy positive 37K. CAD bulls would suggest that last week’s jobs figures is a sign that the Canadian economy is shrugging off any set-back from its first quarter. On the flipside, aside from the rate divergence argument, USD bulls will also lean on how erratic Canadian jobs report can be. If you’re someone who manages your company’s USDCAD exposure, it’s important to remember that ‘one’ headline print is not a trend, so do not look at one report in isolation.

 

In addition, while the labor market added jobs, consumer spending also rose. The Wall Street Journal reports that the retail sales figure came in at an annual pace of 3.1%, above the previous month's reading of 2.5%. After falling alongside the weakening labor market, consumer spending has recently begun to rise. Auto sales contributed the most to the consumer spending measure. The WSJ states, "The largest gain in dollar terms was a 1.5% increase, to C$10.24 billion, in auto-related goods, led by a 1.8% sales gain at new-car dealers. Excluding the auto component, Canadian retail sales rose 0.5% to C$32.22 billion."

However, despite that fact that the labor market and household spending are improving, productivity of the labor force is falling. In Q1, the productivity figure came in at a quarterly contraction of -0.1%, which is down from Q4 2014 revised reading of 0.3%, while also missing estimates for 0.2%. In recent months, the productivity measure has leveled off, seen below. As productivity declines, economic growth will continue to have trouble rebounding higher.

Canada's economy remains weak, but is steadily improving. Jobs are being added to non-energy related sectors which is aiding consumer spending measures. Increased jobs, however, are not translating to economic activity as much as it could, due to lower labor force productivity. Ultimately, the Canadian economy is improving, which should technically lead the loonie to higher ground in coming months.

 

 

From the Canada Mortgage and Housing Corporation, the trend measure of housing starts in Canada was 181,231 units in May compared to 179,524 in April, according to Canada Mortgage and Housing Corporation (CMHC). The trend is a six-month moving average of the monthly seasonally adjusted annual rates (SAAR) of housing starts. "The small increase in the trend was primarily driven by higher multiple starts in Ontario, the Atlantic region, and Québec. Despite month-to-month variation in multiple starts, CMHC expects builders will continue to focus on managing inventory of completed but unsold units — inventory that is still above historical average," said Bob Dugan, CMHC’s Chief Economist. "CMHC also forecasts slight moderation in housing starts in 2015 and 2016, reflecting a slowdown in housing market activity in oil-producing provinces that will partly be offset by increased activity in provinces that are seeing the positive impacts of low oil prices."

 

From a report for April, Statistics Canada demonstrates that contractors took out $7.8 billion worth of building permits in April, up 11.6% from the previous month and a second consecutive monthly advance. The gain in April stemmed from higher construction intentions in both the residential and non-residential sectors in Ontario.

In the non-residential sector, the value of permits rose 30.2% to $3.3 billion in April, following a 24.8% gain in March. Increases were posted in three provinces, led by Ontario, followed by Alberta and Newfoundland and Labrador. British Columbia and Quebec registered the largest declines in construction intentions for non-residential buildings. Construction intentions for residential buildings increased 1.2% to $4.5 billion, a third consecutive monthly advance. Gains were noted in Ontario, Quebec, Nova Scotia and Newfoundland and Labrador. The largest decrease occurred in British Columbia, which had posted a notable increase the previous month.

USD in Focus

 

　

Last week we mused that because the Swiss franc was able to nudge out the USD as the best weekly performer that it foreshadowed a brief pause in the USD rally. And that’s exactly what transpired; the USD corrected its strong two week rally with a four day losing streak until Friday’s strong U.S. jobs data arrested its decline. The outliers for the week were the euro, NZD, and the yen. The euro was the top performer last week as the long German bund and short euro hedge position reared its ugly head again (the last time it happened was late April and early May). The NZD sold off to a low dating back to August 2010 as the market is pricing in a 50% chance of an interest rate cut by the Reserve Bank of New Zealand on June 10. Meanwhile, the yen also reached a multi-year low dating back to November 2002 as the strong May U.S. nonfarm employment report caused the December Fed funds contract to fully price in one rate hike by the Fed this year.

 

Euro in Focus
 

The price action in the Euro was very volatile last week. It moved from a low of 1.0880 on Monday to a high of 1.1380 on Thursday, that’s a 5 euro move and it was all powered by the unwinding of the long German bund and short euro hedge trade. International holders of German bunds decided to sell their bonds and to buy back their euro hedges, which basically caused that massive short squeeze in which the euro rallied by five big figures.

More important is why the bonds are being sold. Two reasons, the first is that back to back Eurozone inflation of 0.0% for April and 0.3% for May demonstrate that deflationary pressures are easing, which in turn are causing investors to question whether the ECB will continue its newly minted QE program. The second reason is fear that the Greek crisis could unravel. Greece is refusing to maintain the status quo of pretend and extend – that is to say that they are not looking to have creditors loan them more bailout funds in order for them to service debt. The Greeks want debt relief. The trigger point last week was that Greece delayed a key debt payment to the International Monetary Fund due on Friday offering instead to bundle four payments due in June into a single 1.6 billion euro (£1.16 billion) lump sum which is now due on June 30. This might be a sign that Greece may be choosing to preserve what's left of its war chest if talks don't improve and default.

JPY in Focus

 

The other move that caught our eye last week was that of the JPYUSD to a multi-year low at the 125 level. The decline in the yen suggests that traders are once again speculating that the Japanese currency will continue lower and, indeed, the recent CFTC Commitment of Traders data shows a dramatic increase in bearish bets on the JPY (bullish JPYUSD positions). In the past two weeks, net yen shorts have risen to 86K from 22K. This week’s revision to Japan’s initial Q1 GDP estimate will be the key market moving event. Revisions have been consistently higher than the original estimate so if it also happens on this one it could pour cold water on those looking for more QE which could induce a period of short covering.

 

 

   

USDCAD falls from 1.2442 down to 1.2310 - two week low on higher oil

VBCE Daily Foreign Exchange Update for Tuesday, June 9, 2015

USDCAD spot rate: 1.2325 - 1.2330 (AS AT 8:09AM PST)

RANGES:	Asia:	1.2380	to	1.2419
	Europe:	1.2378	to	1.2442
	North America:	1.2317	to	1.2382

Technical Support / Resistance:

S2	S1	R1	R2
1.2260	1.2317	1.2440	1.2563

Key Economic Data Releases:

- U.S. wholesale inventories: 0.4% (exp. 0.2%)

Key Event Calendar:

DATE	CANADA	U.S.A.
June 10		Business inventories, crude oil stocks change
June 11	New housing price index	Jobless claims, retail sales
June 12		Producer price index, consumer sentiment index

Yesterday, USDCAD climbed from 1.2430 to 1.2472 before falling to 1.2396 on better than expected Canadian housing data. The pairing then bounced to 1.2450 before falling to 1.2383. The move below 1.2400 was short-lived with USDCAD climbing back to 1.2415 late in the session. Overnight, USDCAD dipped to 1.2380 before climbing to 1.2442. The move higher was short-lived and USDCAD dropped to 1.2330 this morning in the absence of any key data. A minor bounce to 1.2355 has since been followed by a move to 1.2310 – a two week low. Oil is on the rise for the 2ND straight day after comments made by the Saudi Arabia Oil Ministry: “production rise is the result of increased global demand – not designed to compensate for low oil prices.” On Thursday, U.S. retail sales data is expected to rise by 1.1% after no gain the previous month. Currently, the TSX and the DJIA are up 0.16% and 0.12% respectively. EURCAD is down 1% trading between 1.3848 and 1.4055. GBPCAD is down 1%, trading between 1.8849 and 1.9055. JPYCAD is down 0.55% trading between 0.00991 and 0.00999. Gold is up 0.23% trading between $1,172 and $1,183USD/oz., silver is down 0.12% trading between $15.97 and $16.19USD/oz., while oil is up 3.5% trading between $58.25 and $60.20.

 

Trouble in Oceania

The Swiss franc nudged the USD out of first place last week despite the news that Switzerland's economy shrank in Q1 by 0.2%, which may foreshadow a brief pause in the USD’s rally after strong advance since mid-May. A combination of month-end flows and a six point drop in Friday’s release of the May Chicago PMI, to contraction territory at 46.2, encouraged USD bulls to take profits ahead of this week’s busy economic calendar. The releases include a central bank meeting in Australia, the UK, and Europe as well as OPEC's semi-annual meeting. The key economic events are the monthly global PMI readings, Eurozone flash CPI, and the U.S. nonfarm payroll report.

The worst performing currencies last week came from the two main countries in Oceania, Australia and New Zealand as their currencies fell 2.7% and 2.38% respectively. Both economies are dealing with the reduced demand from China for their main export product, iron ore for Australia and milk for New Zealand. Both currencies are being pulled down against the USD by the divergence in monetary policy. 

The AUD was weighed down by Wednesday’s release of private capital expenditure which came in at -4.4% versus -2.3% that was expected. The data reveals that Australia’s transition away from a mining-dominated economy remains challenging and is still some time away. The capex data is the weakest in five years and supports the Reserve Bank of Australia's decision to cut the official cash rate in February and possibly at this week’s upcoming meeting.

The NZD fell to a five year low against the USD on Friday and has shed about 6.5% since mid-May as investors wagered that interest rates in New Zealand and in the U.S. were set on a diverging course. The catalyst for the move was the release of the ANZ Business Outlook Survey which fell to 15.7 in May from April's reading of 30.2. The survey showed that inflation expectations were at an all-time low of 1.6% in May, which is below the Reserve Bank of New Zealand's (RBNZ) 2% target midpoint. The string of poor data and dairy price indications has increased pressure on the RBNZ to cut rates. The central bank’s next meeting is on June 10th.

USDCAD falls from 1.2535 to 1.2430 as EURUSD surges 3 cents on Greece optimism

VBCE Daily Foreign Exchange Update for Tuesday, June 2, 2015

USDCAD spot rate: 1.2435 - 1.2440 (AS AT 8:45AM PST)

RANGES:	Asia:	1.2503	to	1.2535
	Europe:	1.2492	to	1.2531
	North America:	1.2430	to	1.2521

Technical Support / Resistance:

S2	S1	R1	R2
1.2305	1.2410	1.2560	1.2665

Key Economic Data Releases:

- U.S. factory orders: -0.4% (exp. 0.0%)

Key Event Calendar:

DATE	CANADA	U.S.A.
June 3	Int’l merchandise trade	ADP employment change, trade balance
June 4	Ivey PMI	Jobless claims
June 5	Net employment change	Non-farm payrolls, unemployment rate
	Unemployment rate

Yesterday, USDCAD climbed from 1.2439 up to 1.2563 with pull-backs limited to 1.2515. After the 3RD consecutive day of trading above the 1.25 level, USDCAD managed to close the session above 1.2500 near 1.2535. Canadian manufacturing data was better than expected and oil traded over $60 but general USD strength prevailed after the U.S. ISM manufacturing data was better than expected. Overnight, USDCAD remained confined to a 1.2492 – 1.2535 range. The USD began to broadly weaken on market optimism that Greece would avoid default on its loans. Eurozone inflation was also higher than expected sending the EURO 3 cents higher vs. the USD. The ensuing USD weakness has taken USDCAD down to 1.2430. A brief bounce to 1.2473 has been followed by a return to 1.2430. On Friday, Canada is expected to add 10,000 new jobs after nearly 20,000 job losses the prior month. The unemployment rate should hold steady at 6.8%. The U.S. is expected to add 225,000 jobs after additions of 223,000 prior. The unemployment rate is expected to remain unchanged at 5.4%. Currently, the TSX is up 0.34% while the DJIA is down 0.15%. EURCAD is up 1.30% trading between 1.3663 and 1.3916. GBPCAD is up 0.20%, trading between 1.8989 and 1.9122. JPYCAD is down 0.20% trading between 0.01001 and 0.01004. Gold is up 0.25% trading between $1,186 and $1,196USD/oz., silver is up 0.40% trading between $16.65 and $16.86USD/oz., while oil is up 1.10% trading between $60.11 and $61.20.