Dollar Rally Rolls on; Loonie Benefits?

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Market Drivers for May 10, 2013
USD/JPY rally continues
UK Trade data misses
Nikkei 2.93% Europe 0.62%
Oil $95.69/bbl
Gold $1448/oz.

Europe and Asia:
JPY Trade Balance – BOP Basis Yen 0.34T vs. 0.48T
JPY Eco Watchers Survey: Outlooks 56.5 vs. 59.2
EUR German Trade Balance 17.6B vs. 18.0B
GBP Visible Trade Balance -9.1B vs. 8.9B

North America:
USD Fed’s Bernanke Speaks at Chicago Fed Conference 9:30
USD Monthly Budget Statement 12:00
CAD Unemployment Rate 8:30
CAD Net Change in Employment 8:30
CAD Full Time Employment Change 8:30

The dollar rally continued in Asian and early European trade today with greenback strong across the board as EUR/USD dropped through the 1.3000 barrier, GBP/USD broke 1.5400 and USD/JPY maintained its vertical ascent reaching 101.44 before pausing.

There was very little news on the docket today with only the UK Trade data coming in a bit weaker than expected. The UK Trade deficit widened to -9.1B versus -9.0B forecast and a bit better than the -9.4B figure the month prior. The data had little impact on cable, but the currency weakened in the overall dollar rally – tumbling through the 1.5400 figure in morning London dealing.

One side effect of the great leap forward in the USD/JPY has been the unwinding of the safe harbor trades as USD/CHF has managed to soar as well while taking EUR/CHF all the way to 1.2460 before settling down.

The majors now stand at key support levels against the greenback with EUR/USD now pressing near the long term range bottom of 1.2950, cable nearing 1.5300 and Aussie zeroing in on the seminal parity mark. Yesterday’s move was not only a surge in USD/JPY but a massive rally in USD/G10 in general and it will be interesting to see if in today’s North American trade the markets will try to press the move further or stage a rebound in high-beta currencies now that we near key support levels.

The one unit that has survived the assault of the greenback relatively unscathed is the loonie. The Canadian dollar has shown relative strength yesterday and today as USD/CAD remains well below the 1.0100 level. The loonie is enjoying the “North America bid” as investors reposition towards the region which is appears to be economically stronger than the rest of the world.

Today’s Canadian employment data – which is the only major release on the North American docket – could go a long way towards supporting that thesis. The market anticipates a rise of 14.8K versus a horrid print of -54.K last month. Canadian labor data has a history of mean reversion after massive prints in either direction, so chances for a rebound are strong. If the number prints at 20K or better that could fuel further rally in the loonie and could push USD/CAD to test the parity level as the day proceeds.

Boris Schlossberg
Managing Director

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