Intraday Market Thoughts

Loonie Limping Again

by Adam Button
Feb 20, 2014 0:04

Bad weather, trouble in emerging markets and Canadian dollar weakness; Wednesday was a microcosm of the year so far. The pound was the top performer once again and the loonie fell 1.5 cents in US trading. Japanese trade balance is up later.

The bad weather wrangling came after US housing starts fell to a pace of 880K in January, far short of the 950K consensus. It's always a slow month for home building but it was an especially soft reading. A month ago, Fed officials confidently brushed aside notions that soft numbers were anything but weather. On Wednesday, Lacker and Williams both edged away from that position and admitted the persistent weakness could be a problem. It won't be until the Spring that we have a better sense of the economy but numbers for March will be extremely important.

The situation in Ukraine bears watching but late in the day on Wednesday, AP reported a truce had been reached between the president and opposition. That's likely to calm short-term nerves. Earlier in the day, the army chief was sacked and as tensions rose, EUR/USD slipped. That reaction is worth remembering for future reference.

USD/CAD fell to a one-month low in European trading at 1.0910 but it only took two minor headlines to spark a complete turnaround. The first was an M&A story as a Canadian oil company bought some assets from Devon Energy for $3.1 billion. That's a small number and not likely to be the start of a trend.

The second was a 1.4% fall in Canadian wholesale sales compared to 0.4% expected. If you haven't heard about this report it's because it's a lower-tier indicator and it's also very laggy. This was the release for December.

In any case, USD/CAD shot to 1.1080 from 1.0910 after the news. The rebound in the pair came right at the 50% retracement of the 2014 gain and puts a big, bullish engulfing candle on the chart.

Looking ahead, the market will be closely watching Japanese stocks to see if US worries spread. Data will also grab headlines with January trade balance expected to show a nearly 2.5 trillion yen deficit. The good news is that exports are expected to rise 12.7% y/y.

Today's Premium Insights issued new trades in USDCAD and NZDUSD with 3 new charts ahead of the release of the FOMC minutes. Existing longs in USDJPY, GBPUSD and AUDCAD remain in progress, while this week's CADJPY short issued via SMS neared the final objective of 92.20 from 92.75 entry All details are in the latest Premium Insights.
Act Exp Prev GMT
Trade Balance
-2,790B -2,489B -1,302B Feb 19 23:50
Adjusted Trade Balance
-1.82T -1.56T -1.26T Feb 19 23:50
Wholesale Sales (DEC) (m/m)
-1.4% -0.5% -0.2% Feb 19 13:30
Exports (JAN) (y/y)
9.5% 12.6% 15.3% Feb 19 23:50
Housing Starts (JAN) (m/m)
0.880M 0.950M 1.048M Feb 19 13:30

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