Intraday Market Thoughts

Cracking Day for Crude and CAD

by Adam Button
Apr 15, 2015 22:22

The fundamentals, technicals and everything else aligned for the Canadian dollar on Wednesday in a massive rally. USD/CAD fell more than 2.5 cents after the BOC as oil climbed nearly 6%, the US dollar lagged on soft data. The Australian jobs report is up later.  EURUSD long trade was adeed to the Premium Trades right after the Draghi conference and is in progress. Our USDCAD short from last week has deepened in the money as is NZDUSD.  EURGBP, EURAUD and GBPAUD also in progress.

Newsflow was intense on Wednesday. Here's a quick recap:

1) Draghi brushed aside talk about shrinking the QE program but the press conference wasn't a big market mover. 2) US industrial production -0.6% vs -0.3% exp along with Empire Fed -1.19 vs +7.17 exp caused some significant USD selling 3) Beige Book wasn't as optimistic as many thought it would be 4) Bullard: now may be a good time to start hiking 5) Fonterra milk auction -3.6%

The big market mover of the day was the Bank of Canada. Ahead of the decision there was more talk about a surprise cut, especially after a very weak manufacturing sales report earlier in the day. USD/CAD ramped up above 1.2550 just ahead of the decision.

Instead, the BOC backed away from a dovish bias, saying risk to inflation are now roughly balanced. They were expected to slash forecasts but 2015 was lowered just two ticks while 2016 was bumped up. In addition, inflation forecasts were raised significantly for Q3 and Q4. In the press conference, Poloz was asked about taking out more insurance and he didn't give any indication a cut is under consideration. If anything, he was more upbeat about the economy once the oil effects subside.

The real kicker came in the oil market as crude prices were boosted by a smaller build than expected in EIA weekly supply data. That sent crude above a quadruple top at $54.00/20 and surging to as high as $56.69 – the highest of 2015 and through the 100-day moving average.

The same kind of breakout occurred in USD/CAD as it plunged below the Feb and March lows down to 1.2290. Both are classic breakouts from consolidation and bode well.

The US dollar was weak across the board and even the Australian dollar got into the act, jumping to 0.7999 from 0.7620 despite more fears about China. The focus will shift to the domestic economy in the hours ahead with the jobs report due at 0030 GMT. The consensus is for 15K jobs but the full/part-time breakdown is always important as well. There have been some extremely choppy readings in this data over the past six months and while the ABS claims it has improved its methodology, the market will be skeptical of any large miss.

Act Exp Prev GMT
Fed's Lockhart speech
Apr 16 17:00
FOMC's Mester speech
Apr 16 17:10
Federal Reserve Bank of Boston President Rosengren Speech
Apr 16 17:30
Fed's Stanley Fischer speech
Apr 16 19:00
Industrial Production (MAR)
-0.6% -0.3% 0.1% Apr 15 13:15
Industrial Production (MAR) (y/y)
5.6% 6.9% 6.8% Apr 15 2:00
Manufacturing Shipments (FEB) (m/m)
-1.7% 0.4% -3.0% Apr 15 12:30

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