Olivia

The Canadian dollar is lower for a third straight day. In the European session, USD/CAD is trading at 1.2984, up 0.29% on the day. Markets brace for soft Canadian Retail Sales The US dollar has rebounded this week against the majors, including the Canadian dollar. USD/CAD is on the verge of breaking above the 1.30 line, which has held firm since July 18th. A weak Canadian retail sales report later today could send the Canadian dollar into 130-territory. Retail sales for July is expected to slow to 0.3% MoM, down sharply from the 2.2% gain in June. Core retail sales is projected to drop to 0.9% MoM, down from 1.9%. Canadian consumers have been hit hard by the cost-of-living crisis, and a natural response has been to cut down on spending. This could prove a major headache for the economy, as domestic demand is a key driver of growth. Canada’s inflation has been heading toward double-digits, but as in the US, inflation dropped in July. Canada’s CPI slowed to 7.6% YoY, down from 8.1% in June, which marked a 40-year high. However, CPI common, a core CPI indicator, rose to 5.5% YoY in July, up from 5.3% in June. This is… Read More »USD/CAD eyes 130, Retail Sales next

Following yesterday‘s weak rally and bonds showing, S&P 500 bears have the upper hand (timely announcement). Then, the crypto plunge is adding to downswing‘s credibility – about to spill over into tech. Note it didn‘t and doesn‘t take much of a dollar upswing – continuing the rise is enough. Yesterday‘s positive economic data are to be overshadowed by the Fed pronouncements sinking in. Yes, Daly, Kashkari spoke, even mentioning recession uncertainty… And it‘s clear we‘re likely to face quite some tightening ahead, more so than the markets are discounting – and any swift moves in inflation, are faciliated by economic contraction. The bull trap has been set. Next week won‘t be much better – I‘m looking for grim German PMIs Tuesday, challenged GDP readings on Thursday, and especially the hawkish Jackson Hole. It should be becoming increasingly clear that the risk-on rally is to meet serious reality check, and that lower stock (and other) market data are ahead. The sentiment of my Wednesday‘s recap of deteriorating economy, is to set the tone – and thankfully won‘t be as bad as the German persistently high PPI. Strong dollar to the rescue, a helpful tool in alleviating domestic inflation pressure in the… Read More »It started

Following yesterday‘s weak rally and bonds showing, S&P 500 bears have the upper hand (timely announcement). Then, the crypto plunge is adding to downswing‘s credibility – about to spill over into tech. Note it didn‘t and doesn‘t take much of a dollar upswing – continuing the rise is enough. Yesterday‘s positive economic data are to be overshadowed by the Fed pronouncements sinking in. Yes, Daly, Kashkari spoke, even mentioning recession uncertainty… And it‘s clear we‘re likely to face quite some tightening ahead, more so than the markets are discounting – and any swift moves in inflation, are faciliated by economic contraction. The bull trap has been set. Next week won‘t be much better – I‘m looking for grim German PMIs Tuesday, challenged GDP readings on Thursday, and especially the hawkish Jackson Hole. It should be becoming increasingly clear that the risk-on rally is to meet serious reality check, and that lower stock (and other) market data are ahead. The sentiment of my Wednesday‘s recap of deteriorating economy, is to set the tone – and thankfully won‘t be as bad as the German persistently high PPI. Strong dollar to the rescue, a helpful tool in alleviating domestic inflation pressure in the… Read More »It started

Jackson Hole Symposium – 25/08 – this year’s annual central bank Jackson Hole Symposium is entitled “Reassessing Constraints on the Economy and Policy” and will be closely scrutinised for evidence of a Federal Reserve, and central banks more broadly that might be concerned about the risks of overtightening monetary policy at a time when the challenges facing the global economy are numerous. Markets have been rising for several weeks on the basis that for all the Fed’s hawkish rhetoric the central bank will be forced to adopt a dovish pivot when it becomes apparent that inflation has started to top out. We’ve already seen in recent data that US inflation may well have peaked, however markets appear to be betting that it will somehow fall back quite quickly to the 2% target, at the same time as the Fed signals that rate rises are close to their end game. This seems unlikely given that CPI is still at 8.5% and the Fed Funds rate is between 2.25% and 2.5%. Furthermore, the Fed will want to be sure that inflation is falling at a sustainable enough pace before it signals any sort of dovish shift or pivot, especially if inflation proves… Read More »The Week Ahead: Jackson Hole Symposium, US PCE and Q2 GDP, Harbour Energy, Nvidia and Peloton results

With the summer coming to a close, Fed officials will head to Jackson Hole for their annual symposium. Financial conditions have loosened lately despite the forceful rate increases, which is counterproductive for the central bank. If they push back, that could spell trouble for risk assets but good news for the dollar.  Fed summer camp The top brass of the Federal Reserve will head to the central bank’s summer retreat in Jackson Hole, Wyoming on Thursday to discuss monetary policy. This venue has been used in the past to signal major policy shifts, so it is seen as an unofficial policy meeting. Fed officials are caught in a bind. Despite raising interest rates at the speed of light, their actions didn’t have the desired effects. Yields on government bonds have pulled back and stock markets have rallied with a vengeance since June, ignoring signals from policymakers that they are far from declaring victory on inflation.  As Chairman Powell pointed out, Fed policy is transmitted mainly through ‘financial conditions’, which is essentially a code phrase for bond yields and stocks. The central bank needs tighter financial conditions to slow down the economy and tame inflation, but they have been loosening instead.  That’s… Read More »Week Ahead – Will the Fed fire back at Jackson Hole?

Summary United States: Expansion Not Yet Heading to the Gallows An increase in real retail sales by our estimates and a rebound in industrial production in July offered evidence beyond recent jobs data that the U.S. economy is not yet in a recession. That said, with new orders in the manufacturing sector slowing sharply and housing activity continuing to tumble, data this week did little to change our view that a downturn in the coming quarters will be hard to avoid. Next week: New Home Sales (Tue), Durable Goods (Wed), Personal Income & Spending (Fri) International: Diverging Paths for Inflation in Canada and U.K. Headline inflation in Canada may be showing signs of cooling down. Overall CPI decelerated to a 7.6% year-over-year pace in July, driven by falling gasoline and energy prices. While inflation in Canada may have peaked in July, price pressures in the U.K. have not yet abated. Headline inflation surprised to the upside, reaching 10.1% year-over-year. We expect U.K. inflation to remain elevated for longer, as another sizable increase in electricity prices is planned for October. Next week: U.K. PMIs (Tue), Eurozone PMIs (Tue), South Africa CPI (Wed) Interest Rate Watch: The Fed Still Has More Work… Read More »Weekly economic and financial commentary

EUR/USD ranges this week as written Sunday were: 1.0298 to 1.0175. EUR/USD traded 1.0268 to 1.0122 or a 53 pips drop from 1.0175. Next week aligns as 1.0273 to 1.0150. What changed? 25 pips. We're looking for the close around 1.0150 then long again for next week. Big break for higher last week was 1.0420 and next week 1.0396. Oversold EUR/CHF at 0.9688 assists EUR/USD longs next week to target 0.9800's. EUR/JPY's big break at 136.95 broke below Monday and traded 200 pips to 134.93. Next week, 136.82 is the deciding factor for EUR/JPY shorts. Overall range is located from 137.15 to 138.16. Oversold EUR/CAD traded 113 pips higher then dropped 158 pips. The Friday close around 1.3088 would assist again to EUR/CAD longs and further help EUR/USD higher. EUR/NZD approaches 1.6297. A big drop is required for EUR/NZD longs next week or EUR/NZD is placed last to overall trade rankings. EUR/NZD traded its best day yesterday since last Wednesday at 295 pips higher. Last Wednesday traded 235 pips lower. No progress to EUR/NZD except trading normal ranges. EUR/AUD traded 322 pips this week and traveled straight up from Sunday at 1.4392. The move was required to alleviate severe overbought… Read More »FX week ahead: EUR/USD driver pairs are EUR/CHF and EUR/CAD

The story into the end of the week is all about a repricing of Fed expectations. The market had been all excited about that recent softer US CPI read and tried its hardest to pressure the Fed into a more accommodative message. And yet, this hasn’t been the case.

Australia is expected to have added  25K new jobs in July. The sour market’s sentiment favors a bearish run on a dismal report.  AUD/USD is technically bearish and could extend its decline towards the 0.6850 price zone. Australia will report July employment data on Thursday, August 18. The country is expected to have added roughly 25K new jobs after gaining 88.4K in the previous month, while the Unemployment Rate is foreseen steady at 3.5%. Additionally, the Participation Rate is also seen as stable, at 66.8%. Wages remain well below inflation Ahead of the release, the aussie got hit by a key employment-related report, the Q2 Wage Price Index. The Australian Bureau of Statistics reported wages were up 0.7% in the three months to June, while the annual rate growth was 2.6%, slightly below the 2.7% expected. Still, it is the highest annual rate of growth since Q3 2014. Raising labor demand maintains unemployment at healthy lows, yet wage gains are still lagging behind inflation, which means that real wages are still going backwards. According to the latest official data, the Consumer Price Index stands at 6.1% YoY, more than doubling salaries’ gains. Poor wage growth undermined demand for the Australian… Read More »Australian Employment Preview: No surprises on solid job creation

Summary With much of the world shunning Russia, countries have turned to the United States for the supply of key commodities. In this short special report we detail how Russia-related supply issues are helping propel export growth and are contributing to the normalization of the U.S. trade balance. U.S. export growth has started to turn a corner, with real goods exports outpacing imports amid a sizable lift in exports of industrial supplies & materials specifically. A look under the hood of recent industrial supplies strength suggests the gain was very much tied to goods that have been at the forefront of supply bottlenecks due to the Russia-Ukraine conflict. Categories associated with natural gas, oil and fertilizer accounted for nearly 70% of the gain in industrial supplies exports in June alone. Russia was previously a large supplier of solid fuel and natural gas to Europe, but as much of the world shuns Russia, the United States is helping to fill the gap by supplying more of those goods than it was before the war. According to the EIA, the U.S. became the world's largest liquefied natural gas (LNG) exporter during the first half of the year and data suggests the U.S.… Read More »Conflict of interest: What Russia’s war means for US exports