- Kuroda comments spook JPY
- BoE minutes have bite
- Keystone "no" vote political grandstanding
The run-up to today's FOMC minutes has been lively, with plenty of regional news providing trading ammunition. The Kiwi got whacked on another sour milk auction while the USD/JPY sank after Bank of Japan governor Kuroda's comments about inflation falling below 1%. Inflation was also a concern in the UK with the Bank of England minutes showing that some MPC members were concerned with rising inflation. GBP/USD caught a bid on that news. As expected, US housing data barely caused a ripple on a weaker-than-expected print, with focus clearly on the pending FOMC minutes.
Minutes May Disappoint USD Bears
The minutes from the Federal Open Market Committee (FOMC) meeting of October 29 are only a few hours away from being released. The FOMC statement was deemed to be hawkish and the US dollar embarked on an impressive rally. This week, some analysts are fretting that the FOMC may not have been as hawkish as the markets believed, due to persistently low inflation. They are expecting that the minutes may provide evidence of elevated inflation concerns by members of the Committee, which weren’t evident in the statement thereby causing a delay in rate hikes.
They should also prepare to be disappointed. The FOMC statement acknowledged the improvement in the labour market but reiterated that it would be appropriate to maintain the 0-1/4% target range for federal funds for a “considerable time”. A discussion about inflation shouldn’t be news, considering the FOMC’s mandate, which also suggests that the statement accurately reflects their concerns.
The drop in WTI oil prices below $75.00/bbl will fuel bullish USD/CAD views and limit Canadian dollar gains even though domestic economic data has steadily improved. The Canadian housing market — long considered a bubble in need of bursting — has defied naysayers. Canadian exports have greatly improved and the Federal government is on the cusp of a budget surplus. The Canadian employment landscape has taken a turn for the better and inflation seems to have found a floor. Taken all together, the domestic economic improvements have offset, to a degree, the effects of lower oil prices on the Canadian dollar, implying that the November 1.1220-1.1440 range will remain intact.
Source: Saxo Bank
USD/CAD technical outlook
The intraday USD/CAD technicals are bullish while trading above 1.1330, needing a break of the November downtrend line from the 1.1460-65, which is currently at 1.1360, to extend gains to 1.1405 and then 1.1420. A move below 1.1330 targets a return to 1.1280 and then 1.1240.
The long-term technicals are also bullish USD/CAD. The uptrend from the September 2012 low of 0.9620 is intact while trading above 1.0880. The break of 1.1260, representing the 50% Fibonacci retracement of the 2009-2011 0.9430-1.3040 range targets the 61.8% retracement level, which is 1.1660.
Source: Saxo Bank
Source: Saxo Bank
-- Edited by Kevin McIndoe
Michael O’Neill is an FX consultant at IFXA Ltd.