GLOBAL FX STRATEGY
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DAILY FX UPDATE
Shaun Osborne
Chief FX Strategist
(416) 945-4538
Eric Theoret, CFA, CMT
FX Strategist
(416) 863-7030
Shaun.Osborne@scotiabank.com
Eric.Theoret@scotiabank.com
Friday, March 4, 2016
USD UNDER PRESSURE HEADING INTO NONFARM
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USD weakening broadly; CAD & GBP notable underperformers.
CAD is weak with risk in payrolls, oil, yield spreads & int’l trade data.
EUR strengthens despite broader tone of risk appetite & yield spread.
GBP underperforming; Brexit anxiety softens; techs. are constructive.
USDJPY rallies for a fourth consecutive Asian session; risk in payrolls.
AUD breaks to fresh high, nearing 0.7400 on moderating China fears.
CNY & CNH rally to strongest level since mid-Feb; rumors of intervention in equity markets providing support ahead of NPC meeting.
FX Market Update - Global stocks are higher, global bonds are mostly
lower and commodities (crude, metals – with gold at a 13-month high—
see top chart) continue to strengthen, even as broader fundamental
prospects remain somewhat questionable. This week’s PMI data from
around the world was broadly disappointing but risk sentiment could
well end the week on a positive footing if today’s US NFP data deliver
another solid jobs report. There is no classic “risk on” move in G-10 FX to
be seen this morning, however. The NOK is out-performing on firmer
crude oil prices and the NZD and AUD are vying with the krone for top
spot in the overnight G-10 performance league. The CAD is, however,
lagging and is under-performing broadly, a fraction above a weak
GBP. The USD is generally mixed to lower. Steadier Chinese markets
have likely helped underpin broader risk sentiment. The country is holding its National People’s Congress, which will set the annual growth target and reports suggest that state-backed funds bought local stocks today to bolster markets around this key event. The CNY has also steadied
(USDCNY has dropped a little under 1% in the past month); we continue
to expect a moderate, fundamentally-driven depreciation in the CNY in
the medium-term but investors appear more persuaded by China’
pledge to keep its currency “basically stable” and less concerned about
CNY devaluation risks. Expect early movement in the markets to remain
subdued ahead of US payrolls data. Look for positive risk sentiment to
support the high beta DM and EM FX (AUD, CAD, MXN ) and further undermine the safe-havens (JPY). S.O.
USDCAD (1.3426) • CAD is under modest pressure, with notable declines
against its growth-sensitive commodity peers AUD, NZD and NOK in an
environment of broad-based USD weakness. U.S. employment data are
likely to dominate the NA session and influence the broader tone heading into weekend risk from China, however we highlight the importance
of Canada’s international trade data ahead of next week’s BoC meeting
as policy makers assess the performance on non-energy exports. Implied
USDCAD volatility has softened considerably and the one month measure appears set to break into single-digit territory—well off the highs
from mid-February (middle chart). Risk reversals are CAD neutral at the
one week horizon and suggest steady, modest demand for downside
protection over the one month horizon. One year risk reversals suggest
a continued moderation in demand for protection against downside risk
in CAD. Aside from sentiment, signals from CAD drivers are conflicted as
we consider the supportive impact of oil prices (WTI near two month
highs) and yield spreads (widening in a CAD-negative manner over the
GOLD RALLIES TO 13-MONTH HIGH
Source: Bloomberg & Scotiabank FX Strategy
USDCAD—1M VOL SET TO BREAK BELOW 10
Source: Bloomberg & Scotiabank FX Strategy
USDCAD HRLY—MOMENTUM NOT CONFIRMING
USDCAD
RSI
MACD
Source: Bloomberg & Scotiabank FX Strategy
GLOBAL FX STRATEGY
Friday, March 04, 2016
past week). CAD appears to be responding to oil prices for now, however the U.S. employment release presents considerable risk to the Fed
outlook and could drive a further widening in yield spreads. E.T.
USDCAD short-term technicals: bearish-neutral—USDCAD reached a fresh three month low on Thursday, despite growing signs of uncertainty
exhibited by the remarkably narrow intraday ranges observed over the past three sessions. Daily momentum indicators are bearish, however
they are also suggestive of a deceleration in the pace of decline. The RSI is struggling in the low 30s, just above the oversold threshold. Hourly
charts suggest positive divergence (momentum failing to confirm the fresh lows in spot, see bottom chart). Support is expected at 1.3380 and
1.3350. Resistance is expected at 1.3450 and in the range between 1.3520 and 1.3550. E.T.
EURUSD (1.0972) • EURUSD strength is clearly not a function of risk sentiment – at least not in the sense of the relationship that we have become accustomed to in the past few months. Short-term Eurozone-US spreads have narrowed very modestly (2-3bps) from the levels seen
earlier in the week and may have driven some EUR short-covering pressure. But spreads remain generally at very USD-supportive levels. There
is perhaps some caution getting built into pricing ahead of US payroll data and the ECB policy meeting next week. FT and other reports suggest
ECB policy makers are struggling to agree on aggressive policy steps. While the build up to March meeting has been much less of a drama than
late last year, investors are likely concerned that “disappointing” policy steps could see the EUR do a “December” and strengthen sharply, if
policy measures fall short of expectations. S.O.
EURUSD short-term technicals: neutral/bullish—EURUSD’s short-squeeze extended more than we expected yesterday, running through the
mid 1.09 area to the reaches of the upper 1.09s at writing. Short-term patterns are constructive. The EUR looks better bid though the London
session so far and short-term patterns (minor bull flag) suggest some risk of an extension towards 1.1025/50 in the next few days. Broader
signals are very mixed, however, and still suggestive of a wider range trade with a slight downward bias. S.O.
GBPUSD (1.4152) • Sterling has under-performed on the session so far though reasons for the slippage beyond profit-taking from the 1.42
area are not obvious. There were no major data reports released overnight (and the only piece of UK economic data that was released – new
car registrations – was positive). We think near-term sentiment continues to hinge on “Brexit” and, with the BoE effectively sidelined until the
referendum, at least, UK data will have to take a back seat. After the initial anxiety around the referendum call, investors seem a little less concerned about “Brexit” risks as polls suggest support for the “stay” camp. S.O.
GBPUSD short-term technicals: neutral/bullish—Cable slipped modestly lower from the peaks near 1.42 seen late yesterday but the broader
tone for GBPUSD is constructive from a chart point of view. Firstly, gains are holding above the key, short-term resistance point we highlighted
yesterday (1.4090); secondly, daily and weekly chart patterns are modestly constructive, suggesting some consolidation in the broader sell off
may be seen from here. Key resistance is 1.4288 (40-day MA) and 1.4349 (daily trend). S.O.
USDJPY (113.75) • JPY is flat, supported by broad-based USD weakness and holding in remarkably well in an environment of elevated risk appetite. A pattern of Asian session weakness has been observed over the past four trading days, with NA session gains observed on Wednesday
and Thursday. We highlight the considerable risk presented by the looming U.S. employment release given its importance to the Fed and the
broader market tone. Domestic data have been in line with expectations—the labor cash earnings at 0.4% y/y around the mid-point of its 2015
range. E.T.
USDJPY short-term technicals: neutral—USDJPY has yet to break out of the one month range bound between 111 and 115. Momentum is
conflicted, the modestly bullish MACD set against a modestly bearish RSI. DMI’s are moderating and suggest a waning in the bearish trend that
has prevailed on a YTD basis. We await a breakout of the month-long range. E.T.
Mar 04, 2016
TECHNICALS: BUY/SELL SIGNALS AND PIVOT LEVELS
30 Day
Hist Vol
USDCAD
11.0
EURUSD
9.7
GBPUSD
11.8
USDCHF
9.8
USDJPY
13.6
AUDUSD
13.0
USDMXN
15.8
DXY (USD index)
9.3
EURCAD
12.5
GBPCAD
13.4
AUDCAD
10.4
CADMXN
11.3
BoC Noon Rate
Spot
MACD
1.3423
1.0968
1.4153
0.9932
113.76
0.7386
17.88
97.56
1.4722
1.8998
0.9914
13.32
1.3407
sell
sell
buy
buy
buy
buy
sell
buy
sell
sell
buy
sell
9 & 21day MA
sell
sell
sell
buy
sell
buy
sell
na
sell
sell
sell
sell
DMI
sell
sell
sell
sell
sell
buy
sell
sell
sell
sell
buy
buy
RSI
33
47
46
48
45
68
41
50
36
36
55
52
Pivot 1st
Support
1.3372
1.0885
1.4059
0.9888
113.24
0.7314
17.80
97.23
1.4592
1.8890
0.9821
13.26
Pivot 1st
Resist.
1.3473
1.1021
1.4220
0.9979
114.27
0.7427
17.98
98.12
1.4815
1.9074
0.9967
13.40
Source: Scotiabank & Bloomberg
2
GLOBAL FX STRATEGY
TODAY'S CALENDAR
Time
Country Type
(EST)
08:30
US
EMPL.
08:30
US
EMPL.
08:30
US
EMPL.
08:30
US
EMPL.
08:30
US
EMPL.
08:30
US
EMPL.
08:30
US
DATA
08:30
CA
DATA
08:30
CA
DATA
10:00
CA
PMI
13:00
US
FED
Friday, March 04, 2016
Release
Period Consensus
Change in Nonfarm Payrolls
Unemployment Rate
Average Hourly Earnings MoM
Average Weekly Hours All Employees
Underemployment Rate
Labor Force Participation Rate
Trade Balance
Int'l Merchandise Trade
Labor Productivity QoQ
Ivey Purchasing Managers Index SA
Fed's Kaplan (non-voting) speaks; details unknown
Feb
Feb
Feb
Feb
Feb
Feb
Jan
Jan
4Q
Feb
195k
4.9%
0.2%
34.6
-62.8%
-$44.00b
-0.90b
0.0%
58.0
Last
Significance
151k
4.9%
0.5%
34.6
9.9%
62.7%
-$43.36b
-0.59b
0.1%
66.0
HIGH
HIGH
HIGH
med-high
med-high
med-high
med
HIGH
low
med
med
CONTACTS - GLOBAL FX STRATEGY
Please contact authors directly to be added to distribution lists
Shaun Osborne
Chief FX Strategist
T +1 416 945 4538
Shaun.Osborne@scotiabank.com
Qi Gao
FX Strategist (Asia), Associate Director
T +852 2861 4770
qi.gao@scotiabank.com
Eric Theoret, CFA, CMT
FX Strategist (G10), Associate Director
T +1 416 863 7030
eric.theoret@scotiabank.com
Eduardo Suarez
Senior FX Strategist (LATAM), Director
T +52 55 9179 5174
eduardo.suarez@scotiabank.com
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