Today's Bank of Canada decision on interest rates (10:00 Eastern, 15:00 London/BST) could be a signal that stretches beyond Canada. The loonie was the top performer Tuesday in anticipation of a hawkish move while the Swiss franc lagged. The latest video for Premium subscribers below highlights this week's trade action on CAD.
The loonie has been the hottest currency this month as NAFTA negotiations improve but it will be BOC Governor Poloz in the spotlight on Wednesday at 1400 GMT with a tricky decision to make.
The latest Canadian inflation and jobs numbers were good but other data has been soft, especially housing figures, jobs and inflation reports lately may have been skewed by minimum wage hikes. In addition, the BOC is inclined to play it safe on NAFTA until the smoke clears.
That leaves the market pricing in about an 18% chance of a hike, which is probably higher than what it should be, but it reflects Poloz's recent flair for the dramatic.
In his most-recent comments a month ago, Poloz said the BOC was obliged to allow some capacity building occur and that more workers could enter the economy. That indicates he wants to wait and see before making any decisions. Yet, the timetable may have been moved up by last week's BOC business outlook survey. It showed far more firms expecting price hikes in the year ahead along with a blockbuster year for US demand.
Assuming rates are left unchanged, the first thing to look for is the central bank's revisions for GDP growth and inflation. This will shape up market's pricing for the June meeting. That's when the market is evenly split in the hike/no hike camps.
So the BOC is left with the decision to wait and see if its upbeat predictions materialize or to wait for hard evidence first. Sound familiar? That's the predicament that virtually every major central bank is facing, at least to some extent. At the moment, most are in the 'hike now' camp but economic data this year has been roundly disappointing and a shift towards patience from the BOC could be a sign of things to come.
Talk about striking Syria with missiles finally turned to action early Saturday as the US, France and UK fired more than 100 missiles at three main targets. Markets were closed during the event and the lack of follow up or retaliation soothed fears of an escalation. CFTC positioning data showed increasing bets on the euro. US retail sales follow shortly. The short GBPUSD trade hit its final target of 1.4330 from its 1.4100 entry 3 weeks ago. A new USD trade has been issued for the Premium service. Broad USD weakness ensued as the control group of US retail sales came in within expectations.
Syria strikes turned out to be less of an event than feared and since they hit during non-market hours, there was no kneejerk reaction. Trump also declared this would be the end of this action so that further calmed markets.
One thing that could upend the positive mood is a fresh round of US sanctions against Russia on Monday. US officials announced they will be coming in the day ahead and that could add to recent volatility in ruble trading.
The US President will also have to navigate a tell-all interview with former FBI director Comey. In all likelihood, there won't be any truly surprising headlines but Trump will surely tweet his displeasure.
CFTC Commitments of Traders
Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.
EUR +147 vs +134K prior GBP +43K vs +40K prior JPY +3K vs -4K prior CAD -32K vs -32K prior CHF -11K vs -10K prior AUD -3K vs +0 prior NZD +23K vs +18K prior
Euro longs continued to build despite the recent string of soft economic data points. That's a sign of either foolishness, or confidence that better numbers are coming and that the ECB won't be shaken from its rate-hike path. The other spot that's vulnerable is CAD as the loonie squeezes the shorts.
|Core Retail Sales (m/m)|
|0.2%||0.2%||0.2%||Apr 16 12:30|
Whatever happened to fundamentals? War, trade, and whatever else Trump tweets are drowning out everything else in markets. The pound was the top performer Thursday while the Swiss franc lagged. Chinese trade balance is due up next. The EURGBP trade (opened over 6 mths ago) was stopped out, leaving 5 trades in the green and 2 in the red. Do not forget Ashraf's webinar on Tuesday about Trends and cycles in Dax and US dollar.
Markets turned Thursday after Trump tweeted that an attack against Syria could happen very soon or not so soon at all. Leaks from the White House suggested he hadn't made up his mind and other suggested officials were considering 8 targets, including air bases.
For now, the market has reverted to a wait-and-see mode by giving back the gains in gold and Treasuries. The stock market climbed as well but earnings begin Friday and that will be a driver going forward.
As for FX, fundamentals briefly grabbed the spotlight after the FOMC minutes but there remains a major disconnect between what the Fed says it will do and what the market thinks is coming. At some point there will be a reckoning.
ECB policymakers may also have to recognize the recent disappointment in data. Eurozone industrial production fell 0.8% in February, far worse than the +0.1% reading expected. It's part of a pattern that has pushed Citi's economic surprise index for the eurozone to -89, which is the lowest since 2011.
The ECB is in a tough spot because there is a heavily-entrenched bloc that will demand an end to QE and shift to something closer to neutral, but it's possible that the stronger euro is hitting the economy harder than expected and that structural headwinds will continue to undermine growth. The euro dipped down to 1.2300 from 1.2360 after the data but rebounded to 1.2330.
Looking ahead, Chinese trade data threatens to highlight imbalances once again. Imports are expected up 7.5% y/y with exports forecast to rise 8.0% and a surplus of CNY181B.
|Eurozone Trade Balance|
|20.2B||19.9B||Apr 13 9:00|