- US Durable Goods mostly durable submarines
- Economic data could offset month-end flows
- Canadian dollar caught in crossfire
The middle of the week resembles the middle of the dog days of summer; FX volatility is low, ranges are fairly narrow and Friday's month-end rebalancing flow risks seem to be discounted. The highly-anticipated European Central Bank (ECB) meeting is still a week away. Mario Draghi's penchant for disappointing analysts and traders seems to be limiting further losses.
FX traders have soured on the bullish kiwi story due to steadily falling dairy prices, soft economic data and concerns that Reserve Bank of New Zealand interest rate increases are on hold. Australia has suffered a similar fate on depressed iron ore prices and China growth worries. is torn between last week's dovish-sounding press conference by the governor of the Bank of Japan and the prospect of rising US yields on the horizon.
The Hunt For Red October
The late Tom Clancy's book, the Hunt For Red October, was a story about the search for a Russian submarine by the American's and Soviets. Tuesday's US Durable Goods report also found submarines. The massive jump (0.8 percent vs. forecast for a decline of 0.5 percent.) in Durable Goods orders was apparently due to a US Navy contract for 10 nuclear powered attack submarines worth USD 17.6 billion, according to MarketWatch.
Dining On Data
Thursday's US Q1 GDP data (Forecast negative 0.2 percent) is expected to suffer a downward revision which will offset the already discounted positive effects from the better-than-expected Durable Goods data. The usual jobless claims report is expected to reflect an improvement from last week's surprising rise.
Friday could be entertaining. The release of Chicago PMI data US Personal Consumption Expenditures, and the Reuters/Michigan Consumer confidence could add to the US economic rebound story giving the a bid while the potential selling of US dollars on month-end rebalancing flows stymies the rally.
Caught In The Crossfire
The Canadian dollar is the best performing currency in the G10 this month (so far) aided in part by diminished expectations for the Bank of Canada (BoC) to cut interest rates to combat deflation. The other major driver of Canadian-dollar strength has been the unwinding of long and as well as short trades.
However, the prospect of US dollar selling due to month-end rebalancing flows and position adjustment ahead of the BoE, ECB and BoC meetings next week suggests that the risks for a short-term correction have risen. In addition, all four currency pairs (including ) are at or very near strong short-term support. The US dollar index is also at resistance in the 80.50-60 level.
USD/CAD Technical Outlook
The short-term USD/CAD technicals are mixed suggesting a 1.0840-1.0940 range for the short term. The USD/CAD bears are happy while trading below 1.0880 and looking for support in the 1.0840-50 zone to crumble extending losses toward 1.0750. On the other hand, an argument could be made that the downtrend from the March peak at 1.1270 ended with the move above 1.0890 last week. Strong support in the 1.0840-50 area, which is also the base of the uptrend line from September 2013, has held. A move above resistance at 1.0880 should lead to another test of 1.0940.
Source: Saxo Bank
-- Edited by Martin O'Rourke
