Forex USD ‘bulls run rabid’!

With labor holidays out of the way in North America, this shortened work week will provide a one two punch for USD bears. Up first three Cbanks take center stage (BOC, ECB and BOE) while Fridays NFP and Canadian employment numbers could leave a bad taste in investor’s mouths.

The US$ is stronger in the O/N trading session. Currently it is higher against 14 of the 16 most actively traded currencies in another ‘volatile’ trading range.

FX Heatmap September 2nd, 2008

The greenback has found traction from various sources. Monday being a national holiday certainly kept the rest of the market on its toes. Japanese PM Fukuda resigned after a year in power, his weak party has been incapable of getting anything concrete done. Euro-land bearish rhetoric has heightened with BOG’s Papademos noting that European turmoil will last for a significant period of time (you do not have to convince the UK, where Sterling remains under pressure as bad news just keeps coming and trader’s momentum still points for a lower currency now that we have penetrated the 1.8000 level). Center stage this week will be BOC (tomorrow) EBC and BOE on Thursday. We will have one day of mourning followed by employment figures on Friday, one should expect the data to be much weaker as we have been trying to play catch up all last month.

The US$ currently is higher against the EUR -0.78%, GBP -0.88%, CHF -0.84% and JPY -0.38%. The commodity currencies are weaker this morning, CAD -0.49% and AUD -1.88%. The ‘market giveth and the market taketh’. The loonie lost ground on Friday and again in the O/N session after earlier printing weekly highs on account of the greenbacks advancing against most of its major trading partners, coupled with commodity prices handsomely retreating. Canada’s economy grew less than economists predicted in the 2nd Q on the back of falling exports (GDP +0.3% vs. -0.8%). The loonie proceeded to print new monthly lows as traders increased their bets that weak economic growth may influence the BOC to lower O/N rates (3.00%) sometime this year (they next meet tomorrow), while the Fed may even tighten (narrowing the differential spread). Despite weaker Canadian fundamentals of late, investors will continue to closely monitor commodities direction for investment guidance. For now in this current climate expect traders to be better buys of US$ on pullbacks.

The RBA did not disappoint the market as governor Stevens and company cut O/N lending rates this morning (7.00%- first time in 7-years) and pushing the AUD to its lowest level vs. the greenback in over a year (0.8313). Higher yielding assets have remained under pressure over the last week, as investors fear a deepening economic slowdown and are happy to dilute both Asian stocks and pare some of their ‘carry trades’.

Crude is lower O/N ($106.00 down -946c). During Friday’s session, crude prices gave up all of the previous days’ gains and then some, on the back of Hurricane then Tropical storm Gustav inflicting much less damage than was previously expected. In the O/N trading session, oil managed to register new 4-monthly lows after the hurricane eased investors concerns of major damage to rigs and refineries. Prior to hitting land, petroleum companies halted 96% of offshore oil production in the Gulf and limited their refinery capacity in preparation for the storm. One can now expect commodities to continue their 2 month trend of trading under pressure. With demand weakening and abundance of the black stuff of late, energy traders will continue to be better sellers of futures on rallies at the moment. Geopolitical concerns in Russia/Georgia, Nigerian and Iran should encourage some sort of bid on deeper pull backs despite bearish commodity’s fundamentals prevailing. The Russian/Georgia conflict continues to be played out, but, tempers and tension have eased (still some ways to go on the political front). Russia continues to be one of the worlds biggest oil producers. The drop in demand can be attributed to slowing global demand growth and oil coming into the market from newly developed fields from non-OPEC member nations. Gold has fallen $20 to $ 808 as the US$ rebounded vs. the EUR, thus eroding the appeal of the ‘yellow metal’ as an alternative investment.

The Nikkei closed at 12,609 down -224. The DAX index in Europe was at 6,494 up +72; the FTSE (UK) currently is 5,636 up +34. The early call for the open of key US indices is higher. Yields of the US 10-year notes eased 3bp on Friday (3.81%) and backed up 3bp O/N (3.84%). Treasuries have declined in the morning session as global equities have rallied, thus dissuading investors to seek ‘surety of their funds’. With commodity prices easing further can only help the future economic outlook for the US economy.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell