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.
