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USDCAD potential for dip! | 14th Feb 2022Prices are on bearish momentum and abiding to our descending trendline. We see the potential for a dip from our sell entry at 1.27407 in line with 61.8% Fibonacci Projection towards our Take Profit at 1.26718 in line with 78.6% Fibonacci extension and 100% Fibonacci extension. RSI is showing bearish momentum and prices are trading below our Ichimoku clouds, further supporting our bearish bias. Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary, and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interest arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed on the website.
Short
by Rockqet
USDCAD is on bearish momentum! | 9th Feb 2022Prices are on bearish momentum and at a graphical overlap. We see the potential for a dip from our sell entry at 1.27141 in line with 38.2% Fibonacci retracement towards our Take Profit at 1.2662 in line with 38.2% Fibonacci retracement. RSI is at levels where dips previously occurred and ichimoku clouds are also supporting our bearish bias. Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary, and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interest arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed on the website.
Short
by Rockqet
Today’s Notable Sentiment ShiftsCAD – The Canadian dollar weakened on Tuesday, giving back some of the previous day’s sharp gains as oil prices fell, with WTI slipping below $90 per barrel. Commenting on CAD’s performance, OANDA noted that “Some of that weakness has been attributed to the pullback we’re seeing with crude prices. The relentless rally with oil seems to be showing some exhaustion.” EUR – The euro weakened for a second day on Tuesday as market participants continued to reassess the ECB’s policy outlook as ECB members continued to push back against last week’s hawkish monetary policy meeting. During her testimony on Monday, ECB President Lagarde attempted to taper expectations of aggressive interest rate hikes, arguing that high inflation is unlikely to get entrenched. While ECB’s Hernandez stressed on Tuesday that any central bank move “has to be gradual.”
by thunderpips
5
USD CAD - FUNDAMENTAL DRIVERSUSD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy The Jan FOMC decision was hawkish on multiple fronts. The statement signalled a March hike as expected, but Chair Powell portrayed a very hawkish tone. Even though Powell said they can’t predict the rate path with certainty, he stressed the economy is in much better shape compared to the 2015 cycle and that will have implications for the pace of hikes (more and faster). Furthermore, he explained that there is ‘quite a bit of room’ to raise rates without damaging employment, which suggests upside risks to the rate path. A big question going into the meeting was how concerned the Fed was about recent equity market volatility . But the Chair explained that markets and financial conditions are reflecting policy changes in advance and that in aggregate the measures they look at isn’t showing red lights. Thus, any ‘Fed Put’ is much further away and inflation is the Fed’s biggest concern right now. The Chair also didn’t rule out the possibility of a 50bsp hike in March or possibly hiking at every meeting this year, which was hawkish as it means the Fed wants optionality to move more aggressive if they need to. We didn’t get new info on the balance sheet and Powell reiterated that they’re contemplating a start of QT after hiking has begun and they’ll discuss this in coming meetings. Overall, the tone and language was lot more hawkish than the Dec meeting and more hawkish than consensus was expecting. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. Thus, USD usually appreciates when growth & inflation slow (disinflation) and depreciates when growth & inflation accelerates (reflation). With expectations that growth and inflation will decelerate this year that should be a positive input for the USD. However, incoming data will also be important in relation to the ‘Fed Put’. There are many similarities between now and 4Q18, where the Fed were also tightening aggressively going into an economic slowdown. As long as growth data slows and the Fed stays aggressive that is a positive for the USD, but if it causes a dovish Fed pivot and lower rate repricing it would be a negative input for the USD. 3. CFTC Analysis The USD came under some pressure this week, mainly due to overdue mean reversion, recovery in risk assets and of course the surprise hawkish actions by the BoE and more specifically the ECB. Keep in mind that half of the USD’s drop this week occurred outside the CFTC reference period which would explain more limited unwinding in net-longs, and we would expect this number to be much bigger next week. With positioning still in net-long territory for leveraged funds and large specs, and with leveraged funds sitting on a sizeable net-short in the EUR the recent hawkish pivot from the ECB could see some further damage for the USD in the short-term. 4. The Week Ahead After last week’s much better than expected Average Hourly Earnings data out of the US, the main event for the USD as well as markets in general will be the January CPI print for the US scheduled for Wednesday. With another month of upside surprises for inflation data in other global economies, the markets will be watching the US CPI for Jan very closely. Right now, Fed policy has tunnel vision for inflation , and with the surprise beat in Friday’s NFP as well as the surprise punchy upward revisions, the labour market won’t deter the Fed from going all-in to fight inflation . The big dynamic to watch for is wages. Friday’s Average Hourly Earnings print of 5.7% was much higher than expected and saw an immediate jolt higher in US bond yields, with Fed Fund Futures now comfortably pricing in well over 5 hikes by the end of the year. Starting the new year, the biggest reason for expecting a deceleration in inflation was firstly due to base effects, secondly due to expectations that supply chain disruptions ease, and very importantly that commodity prices being cooling down. Out of these three, the last one has not happened yet with oil prices continuing their grind higher (which adds upside risks to headline numbers). Two important components to keep on the radar is wages and shelter prices, which for some means there is very little downside risk to this week’s CPI . How will the USD likely react? Recently the USD has reaction cyclically towards inflation data, which means a solid beat should be supportive, but at the same time a miss would be a far more attractive shorting opportunity, especially against the EUR after the ECB’s pivot . CAD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Despite STIR markets pricing in close to an 80% chance of a 25bsp hike, the BoC chose to leave rates unchanged at their Jan meeting. However, the bank removed its extraordinary forward guidance and said they now think the economic slack has been absorbed (previously expected to occur somewhere in the middle quarters of 2022). The bank also explained that they expect rates will need to rise based on the progress of inflation , and Gov Macklem explained their only reason for not hiking was uncertainty surrounding Omicron. The statement gave a clear signal that a March hike is on the table. Furthermore, on the balance sheet the bank delivered on expectations by noting they will likely exit the reinvestment phase as rates begin to rise. Even though 2022 inflation projections were upgraded, the bank also downgraded growth forecasts (which in our view remains a key reason why current STIR market expectations are not realistic). Thus, the meeting had both dovish and hawkish elements to it, and thus means we are still happy to hold to a neutral bias for the CAD. 2. Intermarket Analysis Considerations Oil’s massive post-covid recovery has been impressive, driven by various factors such as supply & demand (OPEC’s production cuts), strong global demand recovery, and of course ‘higher for longer’ than expected inflation . Even though Oil has traded to new 7-year highs, we think the current Russia/Ukraine tensions and recent tight capacity concerns are the biggest contributors to the upside as our cautious view going into Q1 & Q2 remain intact. The drivers keeping us cautious are A hawkish Fed targeting demand, slowing growth and inflation , lower inflation expectations (due to the Fed), a possible supply surplus in 1Q22, and a consensus that is very long oil (growing calls for $100 WTI). If our concerns do materialize into downside for oil prices it should put pressure on the CAD and other Petro-currencies like the NOK . 3. Global Risk Outlook As a high-beta currency, the CAD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the CAD. 4. CFTC Analysis We think the recent price action and positioning data has seen the CAD take a very similar path compared to April and Oct 2021 where markets were way too aggressive and optimistic to price in upside for the CAD only to see majority of it unwind. We think the CAD is setting up for a similar disappointment with money markets too aggressive on rate expectations for 2022, but oil prices remain a big supporting driver to keep in mind. 5. The Week Ahead A very quiet week for the CAD from an economic data point of view. We do have a speech coming up from Gov Macklem, but he is unlikely to offer anything new that we have not already heard. Thus, the biggest focus or drivers for the BoC in the week ahead will likely be Oil prices and overall risk sentiment. In terms of risk sentiment, with US CPI in the mix, as well as bond markets crashing hard, credit spreads starting to widen and real yields pushing higher across major economies, the uncertainty is starting to pile on for risk assets which means caution on that front will be important for the CAD and the other high betas in the week ahead. In terms of oil prices, the concerns of tighter capacity for major suppliers as well as bad weather and geopolitical stress has kept oil prices well buoyed in the short-term which should be a positive input for the Petro-currencies like the CAD and NOK . However, we remain neutral on the CAD and med-term concerned about oil from here which means we maintain our upside bias for the AUDCAD for now.
by thunderpips
2
USD CAD - FUNDAMENTAL DRIVERSUSD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy The Jan FOMC decision was hawkish on multiple fronts. The statement signalled a March hike as expected, but Chair Powell portrayed a very hawkish tone. Even though Powell said they can’t predict the rate path with certainty, he stressed the economy is in much better shape compared to the 2015 cycle and that will have implications for the pace of hikes (more and faster). Furthermore, he explained that there is ‘quite a bit of room’ to raise rates without damaging employment, which suggests upside risks to the rate path. A big question going into the meeting was how concerned the Fed was about recent equity market volatility . But the Chair explained that markets and financial conditions are reflecting policy changes in advance and that in aggregate the measures they look at isn’t showing red lights. Thus, any ‘Fed Put’ is much further away and inflation is the Fed’s biggest concern right now. The Chair also didn’t rule out the possibility of a 50bsp hike in March or possibly hiking at every meeting this year, which was hawkish as it means the Fed wants optionality to move more aggressive if they need to. We didn’t get new info on the balance sheet and Powell reiterated that they’re contemplating a start of QT after hiking has begun and they’ll discuss this in coming meetings. Overall, the tone and language was lot more hawkish than the Dec meeting and more hawkish than consensus was expecting. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. Thus, USD usually appreciates when growth & inflation slow (disinflation) and depreciates when growth & inflation accelerates (reflation). With expectations that growth and inflation will decelerate this year that should be a positive input for the USD. However, incoming data will also be important in relation to the ‘Fed Put’. There are many similarities between now and 4Q18, where the Fed were also tightening aggressively going into an economic slowdown. As long as growth data slows and the Fed stays aggressive that is a positive for the USD, but if it causes a dovish Fed pivot and lower rate repricing it would be a negative input for the USD. 3. CFTC Analysis The USD came under some pressure this week, mainly due to overdue mean reversion, recovery in risk assets and of course the surprise hawkish actions by the BoE and more specifically the ECB. Keep in mind that half of the USD’s drop this week occurred outside the CFTC reference period which would explain more limited unwinding in net-longs, and we would expect this number to be much bigger next week. With positioning still in net-long territory for leveraged funds and large specs, and with leveraged funds sitting on a sizeable net-short in the EUR the recent hawkish pivot from the ECB could see some further damage for the USD in the short-term. 4. The Week Ahead After last week’s much better than expected Average Hourly Earnings data out of the US, the main event for the USD as well as markets in general will be the January CPI print for the US scheduled for Wednesday. With another month of upside surprises for inflation data in other global economies, the markets will be watching the US CPI for Jan very closely. Right now, Fed policy has tunnel vision for inflation , and with the surprise beat in Friday’s NFP as well as the surprise punchy upward revisions, the labour market won’t deter the Fed from going all-in to fight inflation . The big dynamic to watch for is wages. Friday’s Average Hourly Earnings print of 5.7% was much higher than expected and saw an immediate jolt higher in US bond yields, with Fed Fund Futures now comfortably pricing in well over 5 hikes by the end of the year. Starting the new year, the biggest reason for expecting a deceleration in inflation was firstly due to base effects, secondly due to expectations that supply chain disruptions ease, and very importantly that commodity prices being cooling down. Out of these three, the last one has not happened yet with oil prices continuing their grind higher (which adds upside risks to headline numbers). Two important components to keep on the radar is wages and shelter prices, which for some means there is very little downside risk to this week’s CPI . How will the USD likely react? Recently the USD has reaction cyclically towards inflation data, which means a solid beat should be supportive, but at the same time a miss would be a far more attractive shorting opportunity, especially against the EUR after the ECB’s pivot . CAD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Despite STIR markets pricing in close to an 80% chance of a 25bsp hike, the BoC chose to leave rates unchanged at their Jan meeting. However, the bank removed its extraordinary forward guidance and said they now think the economic slack has been absorbed (previously expected to occur somewhere in the middle quarters of 2022). The bank also explained that they expect rates will need to rise based on the progress of inflation, and Gov Macklem explained their only reason for not hiking was uncertainty surrounding Omicron. The statement gave a clear signal that a March hike is on the table. Furthermore, on the balance sheet the bank delivered on expectations by noting they will likely exit the reinvestment phase as rates begin to rise. Even though 2022 inflation projections were upgraded, the bank also downgraded growth forecasts (which in our view remains a key reason why current STIR market expectations are not realistic). Thus, the meeting had both dovish and hawkish elements to it, and thus means we are still happy to hold to a neutral bias for the CAD. 2. Intermarket Analysis Considerations Oil’s massive post-covid recovery has been impressive, driven by various factors such as supply & demand (OPEC’s production cuts), strong global demand recovery, and of course ‘higher for longer’ than expected inflation. Even though Oil has traded to new 7-year highs, we think the current Russia/Ukraine tensions and recent tight capacity concerns are the biggest contributors to the upside as our cautious view going into Q1 & Q2 remain intact. The drivers keeping us cautious are A hawkish Fed targeting demand, slowing growth and inflation, lower inflation expectations (due to the Fed), a possible supply surplus in 1Q22, and a consensus that is very long oil (growing calls for $100 WTI). If our concerns do materialize into downside for oil prices it should put pressure on the CAD and other Petro-currencies like the NOK. 3. Global Risk Outlook As a high-beta currency, the CAD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the CAD. 4. CFTC Analysis We think the recent price action and positioning data has seen the CAD take a very similar path compared to April and Oct 2021 where markets were way too aggressive and optimistic to price in upside for the CAD only to see majority of it unwind. We think the CAD is setting up for a similar disappointment with money markets too aggressive on rate expectations for 2022, but oil prices remain a big supporting driver to keep in mind. 5. The Week Ahead A very quiet week for the CAD from an economic data point of view. We do have a speech coming up from Gov Macklem, but he is unlikely to offer anything new that we have not already heard. Thus, the biggest focus or drivers for the BoC in the week ahead will likely be Oil prices and overall risk sentiment. In terms of risk sentiment, with US CPI in the mix, as well as bond markets crashing hard, credit spreads starting to widen and real yields pushing higher across major economies, the uncertainty is starting to pile on for risk assets which means caution on that front will be important for the CAD and the other high betas in the week ahead. In terms of oil prices, the concerns of tighter capacity for major suppliers as well as bad weather and geopolitical stress has kept oil prices well buoyed in the short-term which should be a positive input for the Petro-currencies like the CAD and NOK. However, we remain neutral on the CAD and med-term concerned about oil from here which means we maintain our upside bias for the AUDCAD for now.
by thunderpips
2