the daily chartist

USD/CAD recap for 16.09.2015

published 5 years ago

 With this recap I want to start with some notes from BOC's (Bank of Canada) Cote.

 She states: Current CAD level consistent with historical relationship with oil and lays out several points:

  • Falling oil prices have reduced Canadian incomes
  • After contracting in H1, Canadian economy expected to expand in H2
  • Exports that are more sensitive to CAD have regained momentum
  • US economy activity expected to accelerate
  • Inflation is expected to return sustainably to 2% in H1 2017

 The moves: Broad US dollar weakness, WTI crude ripping up 2$ (nearly 6%), better risk appetite with the S&P500 up and other commodities including precious metals, nickel and copper are higher is all bringing to the rise of the loonie. 

 The price on the daily finds itself on a very tight formation which is being broken by the price moving down. Yesterday the price opened at 1.32454 moved to a low to 1.31959 and a high of 1.32564 just to close at 1.31714. I suspect that if the conditions above remain, the price will go down as the loonie appreciates, to 1.30596. There is a case of course before that the price moves back up to 1.32983. Still - everything can change from today's FOMC decision. 

WTI Crude Oil recap for 16.09.2015

published 5 years ago
WTI Daily

 Oil was boosted by the oil glut as the Crude Oil Inventories came out short by -2.1 M barrels from the forecast of 0.7 M. The price jumped with 2$ for a close at 47.57 from its opening at 45.44. Still I think the price may reach 48.58 in the short-term, but in the long-term the market will be oversupplied again and the pressure on energy will continue to subdue the prices to low levels. If this occurs I suggest that the price will move down to 45.53 again and then to 44.45. A break there will send the price back under 44 and then under 40 to the low levels of 39.51. 


S&P500 recap for 16.09.2015

published 5 years ago
S&P500 Daily

 S&P500 isn't giving up on its up move momentum and managed to get to 1998.3 from its opening at 1980. The futures dipped a bit for a low to 1972. Still the price needs to move above 2000 and beyond to close in on the Death Cross between MA 50 and MA 200. In the scenario of a FED rate hold up or some dovish news the index may brake trough these levels and continue to 2096 at first. The price found great support around 1949. What we see is that the stock market has no fear about a rate hike. 

Credit Suisse's five scenario view for the FED

published 5 years ago


 Credit Suisse also made their view on the different scenarios and market reactions on the matter of the eventual rate hike from the Federal Reserve today.

 They look up at five scenarios as stated by Credit Suisse:

 1. A surprisingly hawkish FED: We define this as a rate hike combined with no downgrade of future terminal rate projections. In this case we would expect the USD to resume trend appreciation and rally by at least 5% by the end of the year on broad TWI basis.

 2. The FED hikes but qualifies this by producing suppressed terminal rate expectations among other caveats: This should allow the USD to gain ground in line with our existing relatively muted forecast profile for the next 3 months. But the upside move is likely to be short and sharp as the subsequent period of suppressed rate expectations will reduce the potential for rate-differential and by extension FX volatility and trends.

 3. The FED does not hike but makes it clear there is a high chance of a hike this year, while keeping its terminal rate expectations similar to current projections: We would expect a similar reaction to Scenario#2 above. But to the extent that the market can continue to hope for a protracted FED hiking cycle and material monetary policy divergences persisting with other countries, there may be more lasting opportunities to establish USD longs than the case with Scenario#2. 

 4.  The FED does not hike, it makes it clear there is a high chance of a hike this year, but still lowers its terminal rate projections: We would see a modest USD sell-off around 2-3% over a period of a couple of 1-2 weeks as the market would wonder if the FED ever gets into a position to hike rates at all. We would use this as an opportunity to by USD vs currencies of countries where a policy ease is likely (for example AUD or JPY) or where there are underlying and unsolved fragilities (such as EM currencies like BRL or TRY).

 5. A clearly dovish FED that takes the idea of rate hikes off the table for at least 6 months: This would prove a material shock to the market and should results in material losses for the USD on a TWI basis of at least 5% in the remainder of 2015. This scenario would stress our existing USD-bullish forecast profile unless we were to expect relatively rapid dovish tilts in response by other central banks. 

 To be clear, we are not in the camp that see the start of a FED hike cycle as signaling the peak of USD strength. While we accept that this was more or less true in 2004-2006 FED hiking cycle, that was only because conditions outside the US were so good then that other central banks were hiking even more aggressively, and the USD was used as a carry currency. That picture bears a little resemblance of current global circumstances.

 In this matter I want to add what ANZ (Bank of New Zealand) has to say about the coming rate hike.

 ANZ is expecting as the FOMC goes, but they warn of a government shutdown. In several dots they lay out their view and worries:

  • The FED may hike rates for the first time in nearly a decade - an event many in financial markets have not experienced
  • Our base case is that the FED should proceed with a tightening in what is set to be a close decision
  • The US domestic economy seems solid enough to cope with a modest tweak in interest rate from emergency settings

 And if the FED doesn't move:

  • Its possible Yellen may indicate that the US economy is ready but that the FED is holding off due to heightened uncertainty about the international outlook
  • If this is the case, a further stabilization in financial markets would make October a reasonable proposition
  • There is one development flying under the radar that could undermine such plans and could thwart the FED from moving this year and possibly early next year.
  • The Washington Post reports that the odds of a government shutdown happening in October have risen sharply. Should this happen, the experience of 2013 showed that even if the economic impact may be small, there will considerable uncertainty over the veracity of the data for a couple of months. This could make things tricky for the data dependent FED.

GBP/USD recap for 16.09.2015

published 5 years ago

 The big story for me personaly yesterday was from the UK and what the Pound did in the echoes from the data that we saw. As I mentioned yesterday in my analysis for 15.09.2015 for GBP/USD my scenario, the price not only tried to reach 1.54761, it burst trough it! The daily opened in at 1.53426, went a bit low to 1.53296 and then it rocketed 198 pips to its top at 1.55277 and just to find a close at 1.54930. Average Earnings Index - 2.9% in positive from forecast of 2.5% and previous (revised) at 2.6% and Unemployment Rate went down to 5.5% from 5.6%. Not only that, again, the broad US dollar weakness helped boost and strengthen the move, of course the higher wage inflation, wages are growing in the UK, and the hawkish comments from Carney.

 Yesterday's candle is big bullish engulfing candle and it seems that if the broad weakness in the dollar remains and (after the outcome of today's historic event) we may see the pound push up pretty fast to 1.56866.