This market is selling the euro and sterling almost as much as it is buying the US dollar, as the latter has been trading flat against the yen, Aussie and kiwi and actually fallen against CAD.
The theme seems to be one of carry trading – shorting the euro and its money-printing European Central Bank against the “high yielders” of the rest of the world. Having a look over at signs of wobbly risk appetite, I wonder how long this theme can last but it is certainly strong at the moment.
The loonie was the strongest currency yesterday on the Bank of Canada meeting and Bank of Canada governor Stephen Poloz effectively nipping expectations of further rate cuts in the bud with optimistic wording at yesterday’s meeting.
If US data remain strong, trades like short AUD/CAD or even NZD/CAD could generate considerable interest on the age-old theme of Canada piggy-backing on the economic prospects south of the border.
The JPY got additional support overnight from Bank of Japan member Takahide Kiuchi saying that some small companies were distressed by the weak yen and higher costs from it and that the BoJ should consider reducing the size of its asset purchases. No surprise that Kiuchi was a dissenter at the October 31 meeting, when the vote was split 5-4.
EUR/CAD
A chart like EUR/CAD shows the popularity of shorting the euro at the moment versus commodity currencies. EUR/NZD recently touched an all-time low as well. Yesterday’s Bank of Canada was supportive of CAD across the board as if forced the market to rein in expectations of additional rate cuts.
But can CAD continue its broad outperformance if oil prices take another chop lower? The downside potential for USD/CAD, at least, may be quite limited.
NZDUSD
NZDUSD once again failed to push through the critical 0.7600/50 area, and AUDNZD and NZDCAD posted interesting candlesticks yesterday in a sign that the kiwi’s days as an out-performer may be numbers.
I’m also interested in whether a sudden focus on risk appetite could see the likes of an illiquid kiwi under pressure (general risk appetite pivot a possibility after today’s ECB meeting, as it marks the end of the anticipation phase of the ECB’s QE programme).
The G-10 rundown
USD: Looking strong, though we’ll need to see a solid payrolls number tomorrow to call the greenback strong across the board, as the JPY and commodity currencies are keeping up.
EUR: Will there be a pivot and bounce or an acceleration lower today as more details emerge on the ECB’s QE plans? The key zone of resistance now is 1.1100/1.1150. In the big, big picture, the next support level besides round numbers lower doesn’t really come in until just above parity (0.764 retracement of historic low in 2000 to historic high in 2008).
JPY: Remains resilient and EUR/JPY is breaking down again, and GBP/JPY breaking into the cloud. Interesting to see if we get an additional bid in JPY on possible wobbly risk appetite post-ECB.
GBP: GBP/USD crumbled through support and is well back into the range, even as EUR/GBP continues to look soft. The former looks like a range trade back toward 1.5000 if US data tomorrow supports, while we’ve yet to see a convincing rally in EUR/GBP to suggest the trend is ending, even if momentum has been sluggish at times.
CHF: EUR/CHF lower as euro suffering a broad and intense beating recently. Let’s watch the 1.0610 area post-ECB for relative performance.
AUD: Looks supported against NZD after the latter weakened overnight, but AUD/USD is a mystery until we work above 0.7900 or below 0.7750. We may not get clarity until after tomorrow’s US employment report.
CAD: Bank of Canada supportive, but was it supportive enough to trigger a plunge out of the range in USD/CAD? Prefer to look for CAD strength in other crosses, like AUD/CAD and NZD/CAD, especially if we see strong US numbers.
NZD: NZD weakening a bit on an RBNZ paper discussing more macro-prudential measures aimed at stemming the risk of an aggravated housing (rather than tinkering with the interest rate) Interesting bearish reversal setup in NZD/CAD and bullish setup in AUD/NZD (and NZD/USD noted in chart above) suggest the kiwi may be attempting a turn here.
SEK: EUR/SEK looks heavily oversold short term , but the size of the sell-off suggests the recent highs were a cyclical top and we focus on 9.00 as the next level of interest if the 9.27 remains in place as resistance (a painful throwback rally to 9.38 is a risk for over-exuberant bears).
NOK: Oil doing absolutely nothing, and NOK has sat out the last few rounds waiting for inputs. Watch out for Norges Bank Olsen out speaking later today.
Economic Data Highlights
- Australia Jan. Retail Sales out at +0.4% MoM as expected
- Australia Jan. Trade Balance out at -980M vs. -925M expected and -503M in Dec.
- Germany Jan. Factory Orders dropped -3.9% MoM and -0.1% YoY vs. -1.0%/+2.6% expected, respectively and vs. +3.9% YoY in Dec.
Upcoming Economic Calendar Highlights (all times GMT)
- Sweden Jan. Industrial/Service Production and Industrial Orders (0830)
- UK Bank of England Interest Rate Announcement (1200)
- Euro Zone ECB Interest Rate Announcement (1245)
- Euro Zone ECB President Draghi holds Press Conference (1330)
- US Weekly Initial Jobless Claims (1330)
- Norway Norges Bank Governor Olsen to Speak (1400)
- US Jan. Factory Orders (1500)
- Canada Feb. Ivey PMI (1500)
- US Fed’s Williams to Speak (0300)