Will Loonie Hit New Highs on Jobs Data?

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Market Drivers for July 11 2014

German Final CPI in line

UK Construction output surprisingly contracts

Nikkei -0.34% Europe 0.69%

Oil $102/bbl

Gold $1337/oz.

Europe and Asia:

EUR GE CPI .3% vs. 0.3%

GBP UK Construction Output -1.1% vs. 0.8%

North America:

CAD Employment 8:30 AM

With economic calendar absolutely barren of any fresh data the currency markets remained quiet in lackluster trade on the last day of the week with most risk currencies rebounding slightly as concerns about Portugal’s Banco Espirito Santo began to ease.

Yesterday the shares of one of Portugal’s largest banks were halted in trading after it fell more than 19% on fears that it may become insolvent due to exposure to bad debts from its parent company. The news triggered a knee jerk selloff throughout the European markets as memories of the region’s sovereign debt crisis created panic among investors.

Today however, the BES reassured the markets that it remains well capitalized and stated that the total exposure of the loss was about 1.18B euros addings that its capital buffers remain above the minimum regulatory standards. The news provided a modicum of relief at the start of London trade with EUR/USD running up to 1.3625 while cable popped back to 1.7150.

The pound tumbled 20 points in the wake of the release of UK Construction output figures which showed a surprising contraction of -1.1% versus a forecast of 0.8% gain, The pair however quickly recovered the losses as risk on sentiment persisted in the capital markets with Euro Stoxx 50 rising .70% by mid morning trade.

With no major releases on the US calendar, trading in FX should continue to be guided by the equity markets. If the risk on sentiment carries over into North American trade high beta currencies could extend their rebound with cable possibly challenging the key 172.00 barrier before the end of the day.

The one unit that does face significant event risk is the Canadian dollar which will see the release of the Canadian employment data at 12:30 GMT. The market is looking for a print of about 20K and the unemployment rate of 7.0%. However if the data beats to the upside it could provide a jolt of buying to the loonie especially on a day like today when there is no other major events on the calendar. USD/CAD has been inching slowly but surely towards the yearly lows at the 1.0600 level and a blockbuster number would likely break that barrier as optimism over Canadian growth could sent loonie to fresh yearly highs as the day proceeds.

Boris Schlossberg
Managing Director

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