Market Drivers for March 21 2014

Aussie leads as short squeeze pushes it towards 9100

EZ CA is

Nikkei closed Europe .16%

Oil $98/bbl

Gold $1330/oz.

Europe and Asia:

EUR Current Account vs.


North America:

CAD Core CPI 8:30 AM

CAD Retail Sales 8:30 AM

With Japan closed for holiday and the economic calendar virtually barren of any data today, trading on the final day of the week was very quiet in the currency market with both euro and cable drifting lower to test yesterday’s lows while Aussie soared on a round of short covering.

The Aussie was the clear winner of the night rising towards the 9100 figure as it remained bid throughout Asian and early European trade. The strength in the unit caught many traders by surprise, but we believe that its a function of three factors. First, the market is becoming more and more convinced that the RBA easing cycle has ended with the rate curve no longer pricing in any further cuts. That leaves the yield on the AUD/USD relatively secure and allows the pair to act as conduit for carry trades once again.

Secondly, the anticipated fallout from the slowdown in China has not had the negative impact that many analysts feared. Australia has been able to somewhat rebalance its economy away from mining and exports to services and retail as evidenced by last month’s strong employment report. While still vulnerable to a sharp slowdown in economic activity from China, Australia is clearly able to weather the drop off in demand better than the bears had thought.

Finally, the late shorts that have opened up sell recommendations this week have only served as fodder for a short squeeze rally. Aussie still faces stiff resistance above the 9100 level, but if general risk appetite improves as geopolitical tensions ease the pair could quickly bust through the offers and move towards 9200 by the end of next week.

Meanwhile both euro and cable came under some selling pressure in morning London dealing, but once again held ground at yesterday’s lows. The markets were somewhat jittery over the prospect of a win in local elections of the far right National Front party in France and the gamesmanship over sanctions between Russia and the west. However, even in the best case scenario the National Front is only expected to capture 15% of the vote while Vladimir Putin said that Russia will refrain from retaliating against US sanctions for now. By mid-morning dealing both pairs rebounded off the lows and remained within their recent ranges.

With no US data on the docket, trading in North America today will likely be driven by risk appetite and equity flows. Attention may also shift to north of the border with Canada reporting CPI data and Retail Sales numbers. The loonie has just hit its 5 year lows against the greenback as monetary policies of the Fed and the BOC continue to diverge. If the Canadian data today misses its mark it could weaken the loonie further and drive USD/CAD towards the 1.1300 figure as the day proceeds.

Leave a Comment

Hide me
Receive Thought Provoking Forex Commentary Directly to Your Inbox
Show me