FX Morning Update August 9, 2011
USD/CAD Open: 0.9925-29 Overnight Range: 0.9909-1.0001
The Canadian dollar was highly volatile overnight as Asian markets were volatile as well. Yesterday, panic spread throughout financial markets and equities and commodities are falling with liquidity drying up. Overnight, China CPI came in higher than expected. Rumors that the Fed will intervene is boosting markets. Oil dipped to near $79 but has since risen to $81.20 and gold is higher again at $1,754. NY futures are pointing higher today. The FOMC meets today and may issue a statement at 2:15pm and Canada releases housing starts.
The short term Canadian dollar technicals are negative and the long term Canadian dollar techinicals are at risk should panic selling continue to hurt the loonie. The loonie could reach par today if the FOMC statement underwhelms the market. For today, USD resistance is at 0.9950, 0.9974, and 0.9999. Support is at 0.9914, 0.9850, 0.9817, and 0.9750.
Yesterday, traders have been selling first, thinking later. Today, rumors the Fed will intervene and provide monetary stimulus has provided enough ammunition for traders to take on some risk. If no statement with action is released by the Fed, the market could continue to fall. For the loonie to reach 0.94 USD/CAD, we may need to see oil back in the mid to high $90 range. A crisis of confidence has spread through markets and many are worried about what they don’t know with respect to Eurozone debt issues. The market needs leadership, decisive action, and government intervention to boost confidence and this could occur soon (or it should) to change sentiment. The sheer size of the decline in equity markets and resulting expected consumer spending retracement could likely put the Bank of Canada on a rate hike hold in to the new year. Loonie bulls need to ensure the eurozone debt issues can be put under control indicated by lowering bond yields in the region. Germany leading the way by indicating further willingness to bailout others could also help change sentiment. Moreover, global growth data and government intervention to boost spending, could support oil prices, and as a result the loonie. Loonie bears are waiting for continued weak data, inaction in the US and Europe, and a consumer retrenchment in spending to see the USD rise. If a recession were to occur, we could see the USD at 1.0300 USD/CAD. However, despite all this negative sentiment, banks and governments are in a better position today, and with more experience, to ensure we see action to prevent a recession, and this should help the loonie remain in its long term uptrend. Data points released this week may not matter too much as the markets need government leadership to keep the boat from sinking. The loonie will likely follow oil and equity prices.
Today’s Range: 0.9880 – 0.9999
By Admin | September 11, 2011 | Daily Update |
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