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CAD stages strong rally

Posted on: March 01, 2016

It’s been an eventual session as the market has caught somewhat wrong footed by the extent of the CAD rally. This morning Stats Can released December and Q4 GDP data. All surprised to the upside with Q$ coming in at +0.8% vs +0.0% expected.

In addition, November GDP was revised up from +0.2% to +0.5%. CAD immediately rallied from 1.3540 to 1.3480, stalling at technical support and moving back to 1.3500 on the back of crude doing one of its weird intra-day moves, dropping from $34.50 to $33.40 on the back of absolutely nothing. And just as quickly, crude surged back up to $34.80 which in turn allowed CAD to break through USD support at 1.3450, triggering a round of stops, and as crude stayed bid momentum funds were encouraged to keep selling USD, triggering more stops below 1.3400.

Apparently, between the relative positive comments coming from Russia and Saudi Arabia about co-operation on the crude front (despite political frictions regarding Syria), and the positive Canadian data of late, longer-term fundamental players have also been dumping long USD positions they had built up over the last 2 years.

All this to say is that the CAD is finding new life, and a bunch of USD dip buyers today have been burned badly. Just because buying USD on dips have worked well yesterday where CAD weakened off from 1.3500 to 1.350 at the close doesn’t mean you should always try it again the next day. It’s not that crude is doing incredibly better, in fact it’s at levels that were traded yesterday. What really went on is that yesterday a bunch of Canadian pension funds were large buyers of GBP vs CAD in order to buy controlling interest in London city airport. That kept CAD from strengthening yesterday despite crude staying firm.

Today, the decent Canadian data was just enough to start the avalanche. I should also point out that a bunch of technical analysts have been blabbing about WTI crude always performs well in March, that might have been enough to get the momentum players to kick the sand hill and ruin the USD dip buyers day.

We are getting to levels which I noted last week were not bad levels to go long USD longer-term (i.e. 1.3350). That being said, the fact that longer-term players are now shedding core long USD positions makes me a little cautious in calling this the medium term low. Certainly, looking ahead to Thursday and Friday’s US data, we might see USD get a new bit of a bounce back to 1.3500. But I am now having harder time seeing 1.4000 trade in the next few months and we still have clients with USD sell orders there. I suspect they, like other banks, will see those orders get amended lower to 1.3800 and maybe 1.3600 as impatience grows.

On the political front, today is Super Tuesday and Hillary Clinton and Donald Trump are currently expected to dominate the results. Because of the peculiar relations between the Republican National Party and Mr. Trump, should he live up to poll results, it could see the destruction of the RNP as we currently know it, with Mr. Trump kicked out and forced to go independent, taking a decent chunk of support with him. Or the party accepts him as leader as he see just how badly they can hold their nose and swallow all the nasty things they have said about him. I try and stay apolitical about things general, but I will say the current US political system is a mess and somewhat nauseating to watch from afar, naked self-interest causing people who a week ago reviled Mr. Trump to now saying he is the best choice to lead America in an effort to position themselves on the best winning bet. What it means for the USD, impossible to guess, but it will have some impact so one has to stay aware of the goings on.

Last thing to say, today mark’s my 10 year anniversary at ATB Financial and my first 20 years in the Foreign Exchange Market. Where did the time go? I will say it’s been a pleasure. I love watching the market and I love trying to give the best advice possible. My competitive nature makes me want ATB to provide insights that clients don’t get elsewhere. I like to think that over the last 10 years I have been somewhat successful in doing that.

But one thing for sure, markets continually evolve, and in FX it tends to happen very quickly, so there is no time to get complacent. When I started in the industry trades were done through yelling through phones to brokers, and keeping a stack of trade tickets on the desk was essential. Now the office is virtually paperless and trades can be executed in milliseconds. Who knows what the next 10 years will bring, but one thing for sure is that I will never lose my passion for this job, and I will always try to give clients the best information possible to make their decisions. Thanks for being a very supportive reader base and putting up with Star Wars quotes and other off topic divergences.

  • Mondays Inter-bank range: 1.3506 – 1.3554
  • Asia overnight Inter-bank range: 1.3527 – 1.3552
  • London overnight Inter-bank range: 1.3481 – 1.3535


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