Markets focus on oil & Canada

Forex News and Events

With FX markets subdued and talks over the Greek reform plan failing to produce new headlines, traders have turned their focus back to oil. Today is the deadline for the US-Iran talks (less than 24hrs left). There is marginal optimism that an agreement can be reached (although talks have been difficult) on Iran’s nuclear program. An agreement that will lessen Western sanctions and open up oil to the worlds markets. However, in a bit of political intrigue comments by the republican run US congress indicates that any deal will most likely be challenged. Estimations that should sanctions get lifted, we could see oil exports rising by 0.7 to 1mln bpd by years-end. Not a huge increase, but more than enough to cover current production decrease and keep upside in price capped. In the FX markets, commodity producing nations will continue to underperform. A decline only accelerated by any US-Iran agreement. In Canada BoC Poloz, highlighted the damage caused by oils “atrocious” fall in exports revenues and halting energy investments. He suggested that further economic weakness should be expected as the headlines losses spilldown into the broader economy. On the docket today, Canada will release its January GDP which is expected to drop to 2.4% y/y from 2.8% y/y (-0.2 m/m exp vs. 0.3m/m prior read) . Any further surprise to the downside would trigger expectations of a 25bp rate cut to 0.50% at the next meeting (April 15th). With our expectations that commodity prices will remain low and further monetary policy divergence between US and Canada, we continue to be constructive on USDCAD. Confirmation of USDCAD reversal pattern at 1.2410, and subsequent break of 55d MA at 1.2498 indicates and extension of bullish momentum to 1.2846 range highs.

The SNB released its balance sheet items ending of February 2015 and IMF Special Data dissemination standard ending 31st March 2015 today. There was not too much at could be deduced from the data that the market did not already know. According to the report, the SNBs balance sheet foreign currency investment expanded to chf519.33 from chf507.85 in February. In the days after the SNB abandoned the EURCHF minimum exchange rate were busy with SNB clearly using physical interventions to stabilized the CHF market. Interestingly, while Swiss corporates names were crying the end of days, yesterday’s Swiss Kof leading indicators is telling a different story. The index is designed to predict the direction of the Swiss economy over the next 6-months. The indicator unexpectedly rose slightly to 90.8 verse a broadly expected decline to 88.0 as solid domestic spending (consumption) offset fall in exports due to the strong CHF. While the Swiss economy is clearly feeling the effect of the SNB decisions to end the cap as sentiment in construction and financial sector deteriorated further potentially the downside is not as large as originally prophesized. In fact according to the Kof institute Switzerland is now expected to see growth in 2015. USDCHF continues to bounce above 0.9695 hourly resistance indicating improvement in short term buying interest. Traders will be focused on the next resistance area located at 0.9984.