Market is Exceptionally Quiet on US Holiday
Market Highlights
USDCAD consolidates in illiquid dealings
The market was exceptionally quiet overnight with the US closed for the July 4th holiday. Most of the majors are listlessly hovering around yesterday's closing levels, with perhaps the notable exception of the EUR. The Canadian unit suffered a sell off yesterday on the fact that the US jobs report simply wasn't worse than expected as well as a generally bullish Dollar sentiment due to the retracement that took place in the EUR.
Providing support to the Loonie was yet another record high close for crude oil on the New York Mercantile Exchange yesterday of $145.29 USD. Base, precious metals and agricultural products all had strong sessions to close the holiday shortened week as well, helping to put a bit of a floor under the CAD at the 1.02 level. When we see a return to normal trading on Monday, there is a good chance we could see Canada drift back down towards the 1.01 area as the US jobs report that started the Dollar rally was really less than exceptional. There is no question that the squaring of Dollar shorts ahead of the holiday weekend also exaggerated the move higher in USDCAD yesterday, which is still within its recent ranges and therefore ripe for a move back to the lower end of the recent range.
Although liquidity is unquestionably at a premium this morning, there have also been two minor economic releases in Canada that will spur some positive interest in the Loonie. Canada's international reserve holdings increased as of June 30th by $267M USD to a total of $43.855B. Also, both personal and business bankruptcies in Canada declined in May, pointing to a firming of overall economic conditions.
EURUSD continues to grind lower after 2-cent move
The big story yesterday and again overnight has been the sell off in EURUSD that has taken the pair more than 2-cents lower. The Euro is now trading with a 1.56 handle again for the first time in more than a week. German factory orders for May, released this morning, have added to the newly negative sentiment around the EUR with a decline in new orders of 0.9% on the heels of an even weaker April. Analysts who had been expecting bounce with a positive reading of 0.8% were unquestionably disappointed and the Euro has declined further again today.
As detailed yesterday in the WMU, the EUR initially rallied on Thursday with confirmation that the European Central Bank intended to raise its key refinancing rate 25-basis points to 4.25%. That was followed up with a less than stellar but steady US jobs report that spurred a knee-jerk reaction from market participants, taking the EUR lower.
The move lower was then accelerated with Jean-Claude Trichet's comments at his post-rate announcement press conference that he has "no bias" going forward and that the present level of EUR interest rates should act to anchor inflation expectations going forward. Trichet was uncharacteristically dovish in his comments and the man who is usually telling anyone who will listen that the ECB will act decisively on price pressures was suddenly sending out the signal that European rates may actually be on hold for some time.
Traders who had priced in further rate hikes ahead from the ECB suddenly began unwinding their long EURUSD positions, leading to a steep sell off. Add in those who were seeking to take profit on their short Dollar trades ahead of the US holiday as well as the triggering of trailing stops initiated to protect profits on the way up and the situation quickly deteriorated into a full scale repricing of EURUSD. Although it would not be at all surprising to see a retracement in the Dollar's gains early next week, the world for EURUSD has fundamentally changed in that the interest rate dynamics no longer look quite so bullish for the common currency.
Have a great weekend.
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| Mark Frey, Head Trader |
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