Daily GVI Forex Forex View- Canada the Leading Indicator?
The Daily Forex View
Canada the Leading Indicator?
10:00 GMT- Apr 21 (global-view.com) Although the broad Greek bailout plan is still in place, discussions are now focused on the practical implementation of the plan. It is often said the situations like this that the devil is in the details, and such is the case right now. Concern about how these discussions will work out have been weighing on the EUR this week and has seen the Greek debt default swaps move higher today.
The U.K. today saw another month of better than expected employment data (March) and the latest Bank of England policy policy board minutes. The BOE minutes indicate that some members of the policy board have started to stir about incipient inflation concerns, although policy tightening still does not appear to be imminent. On the other hand, the Bank of Canada sent a signal yesterday that a policy tightening is possible at its next policy decision. This had implications beyond Canada as the Reserve Bank of Australia was already in a policy normalization process. The CAD and AUD have been exceptionally strong this year as a result. Markets are now in the process of determining which economies will be solid enough next to support a move away from excessive monetary ease, as those currencies are the next candidates for major rallies. It could be the CHF is the next in line for a recovery.
We are still in political markets. Political markets can be difficult to trade because decisions and the timing of those decisions can be very hard to predict. The Goldman Sachs fraud investigation boils down to a political and administrative matter that could drag on for a very long time. We also don't know where it might head next.
The EURUSD is steady on the day while the EURGBP is down. The GBPUSD is up. The details of the EU accord to backstop the Greek finances are now being negotiated. IMF issues are being raised as well. Markets are keeping a close watch on the credit default swaps.
In the GBP, U.K. employment data have been clearly improving. Traders are zeroed in on the May 6 U.K. general election. Expectations for a close vote have everyone watching new election headlines. Polls are suggesting that the odds of a hung Parliament are rising. This is the worst case scenario according to some. With no party winning a clear majority difficult decisions that must be made could be deferred. This uncertainty has the GBP in play with negative implications.
Our bias for the EURUSD and GBPUSD remains cautiously bearish. The outlook for the EURGBP is a toss-up.
The EURCHF is continues to trade a narrow range. Some are noting that the SNB has changed intervention tactics. The talk is the SNB has has been in the markets supporting the EUR vs. CHF a lot of the time. Weakness of the EUR vs. the CHF is a bad omen for the EUR.
The USDJPY pair is slightly higher, and the EURJPY cross is stronger. More Toushin bonds are set for issuance this week and should undermine the unit. The Hatoyama government favors an easier exchange rate and continues to pressure the Bank of Japan to stimulate growth. Junior ruling party lawmakers (DPJ) have called on the government to push USDJPY to 120 to combat deflation. Some traders focus intently on the Japanese vs. U.S. 2-yr note spread (only the U.S. 2-yr moves much).
The risk trade is back on today. The commodity currencies (CAD, AUD and NZD) are mostly higher. The Bank of Canada decided to keep rates stable today, but in its text sent a signal that rates could be hiked as early as its next meeting on June 1. Canadian FinMin Flaherty recently suggested little concern about CAD strength. A strong currency eases the pressure from the central bank to tighten policy aggressively. Oil and gold are up along with the other risk trades. We favor the AUD and CAD fundamentally.
Far East equities closed mixed. European bourses are up. U.S. equities are better. U.S. Treasuries are still watching the psychological 4.00% level in the 10-yr note. The U.S. 10-yr was last 3.81%, +1 bps. Bonds are used as a counter to risk trades because risk investments must somehow be financed. When the cost of money moves up (higher interest rates), the return and allure of risk trades falls.
UPCOMING DATA HIGHLIGHTS: In the Eurozone, the Belgian Leading Economic Indicator is often used as a predictor of the German IFO Survey due Thursday. In North America , weekly mortgage statistics and energy inventory data are slated.
See ECONOMIC CALENDAR for a complete list of future forex market events and consensus data estimates. Go to the forex forum for up-to-date market developments and technical trading ideas.
John M. Bland is an author, and co-founder and partner of Global-View.com in 1996. Before that, he was a Vice-President and senior dealer in the fx inter-bank and futures trading arm of the Continental Grain Company in NYC. Previous to that, he was an early member of the Chemical Bank (NYC) corporate advisory service. He also worked in international liability management. John has an MBA from the Hass School at the University of California at Berkeley and a bachelors degree in International Economics from Berkeley.
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