The Canadian dollar is in bears' hands

Strong USD, cheaper oil weigh on Loonie
by Ipek Ozkardeskaya

SPX -18 points at 2031

Dow -145 points to 17408

Nasdaq -435 points to 4572

US futures trade south as the negative sentiment in Asia due to a sharp sell-off in Japanese equities reverberates.

S&P 500 offers at 2080/85 didn’t leave the way for additional gains yesterday. The SPX pulled below 2035 (Fib 38.2% level on Dec sell-off) and hit 2020 (minor 23.6%). The 2005/2000 zone is expected to lend some support before the week-end. The Dow and Nasdaq should stay under pressure as the anticipation of a stronger dollar become somewhat worrisome.

The Canadian dollar is in bears’ hands.

The loonie has had no option but to first waiver then capitulate in the face of the present global macroeconomic picture. On one hand the merciless slide in oil prices, on the other the Fed’s monetary tightening. The US dollar gained exponentially over the past three weeks and is now challenging the 1.40 handle against the Canadian dollar. There is a fairly decent vanilla call expiry waiting to be triggered before the weekly closing bell.

Following the Fed rate hike this week, BoC Governor Poloz positioned himself ahead of the curve to push back any speculation that could possibly propel any hawkish call in Canadian rates.

The core inflation is expected to have accelerated to 2.3% on year to November, from 2.1% last month. The divergence from the BoC’s 2% target could temporarily calm down the BoC doves, who may think that the overheating in inflation may prevent the BoC from edging an unsustainably dovish play.

Clearly, there is little or no market catalyst or desire to halt the loonie’s depreciation. Traders may need to prepare themselves for a move towards $1.50.

Oil and metals remain under pressure as China Beige Book showed that Chinese firms hit record low profits and continue facing deflation.

WTI aggressively sold to seven year low. The oversupply concerns continue weighing on the prices. Understandably, buyers are not courageous enough to confront the crowd of sellers at a time when the big players, led by Saudi Arabia, the US, Iraq and Iran, have been clear on their intention to grasp more market share. And the sanguine rally to the bottom point at new seven-year dip of $32.40.