Focus shift from FED to PBOC

As traders, we were told never to trade Friday the 13th. If we did, it was going to hurt. After yesterday’s short squeeze and Goldman’s revised one year EUR recommendation (1.40), the long dollar positions took it on the chin. Already this week the highly anticipated Fed minutes could not hold the line. Their lack of action or perception has only allowed the risk trading noose to tighten. The minutes confirmed that the Fed has little appetite to enter another round of full balance sheet expanding QE anytime soon, and this despite the recent loss of momentum in the pace of US recovery. The minutes also showed Fed officials reaching for new ways to help the economy. Several officials noted that it could be helpful “to explore the possibility of developing new tools to promote more accommodative financial conditions and thereby support a stronger recovery.” As the market takes its eyes off the Fed, the focus now switches to China and its rumors of further stimulus on the horizon.

Below are some other highlights of the week:


  • CAD: BoC Q2 survey of business saw that Canadian businesses were less upbeat about future sales amid renewed global economic uncertainty. Firms now expect inflation to be in the lower bracket of the BoC target as oil prices drop. The Bank’s says that firms “generally remain positive about the outlook, but are mindful of renewed uncertainty regarding the global economic environment.”
  • CAD: Canadian housing starts rose +2.4% to an annual rate of +222.7k in June vs. a revised +217.4k in May. This confirms that homebuilding has yet to show signs of cooling off.
  • CAD: Canada managed to record a second consecutive month in May, the largest shortfall in 11-months and wider than expectations (-$0.8b vs. -$0.5b). The deficit widened on a surge of crude imports in anticipation of temporary refinery.
  • USD: US trade deficit narrowed for the second straight month in May, as exports picked up and falling oil prices helped drive down imports. Trade of goods and services decreased -3.8% to -$48.68b from an upwardly -$50.6b. The biggest declines occurred as oil prices receded last month as concerns about the global economy have begun to outweigh geopolitical considerations.
  • FOMC: Officials were split over the need for more stimulus. Officials noted slowing growth but expected things to get better, and they were not worried about inflation. Euro and the US fiscal issues were a big worry and some wanted to explore new strategies for Fed stimulus. No immediate hurry to embark on fresh round of quantitative easing favored the dollar.
  • CAD : CIBC quality employment index indicated that Canada has created +155k high quality in the first six month sort this year.
  • CAD: Canada’s new house prices +0.3%, m/m, forecasted +0.2% and reinforces the BoC’s tough love approach to monetary policy.
  • USD: The number of US workers filing applications for jobless benefits fell to the lowest level in four years (+26k to a seasonally adjusted +350k), as some factories skipped their typical summer shutdown. This is the third consecutive weekly decline and offers hope that the job market is improving. The number of continuing unemployment benefit claims also fell by -14k to 3.3m.
  • USD: US import prices dropped -2.7% last month and the largest drop in three years, reflecting the continued fall in oil prices. The easing of inflation gives the Fed more breathing room to stimulate the economy with a reduced risk of price spikes.
  • USD: US wholesale prices, PPI, rose in June (+0.1%) for the first time in 4-months, though the increase was slight and overall inflation expectations appear tame. This is giving the Fed more leeway to help the US economy.
  • USD: UoM confidence index was on the weak side (72 vs. 73.5). There was a split between the current (up: 83.2 vs. 81.5) and expectations (down: 64.8), while inflation expectations fell.
    Despite gas prices declining, a choppy recovery in the labor market is weighing heavily on consumers.



ASIA Week in FX



  • Retail Sales comes to us from USD and GBP
  • Inflation indicators are delivered from NZD, GBP, USD and CAD
  • AUD and GBP both release their respective MPC meeting minutes
  • The BoC presents CAD’s rate announcement
  • EUR has German ZEW economic sentiment to contend with
  • Both GBP and USD has unemployment claims to ponder
  • Building and Home sales data is released in the US
  • The week finishes with USD Philly Fed index


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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