The US dollar barely budged on the Q4 GDP report (2.2%) and is ending the week on a down note having lost ground across the G-10 spectrum. The debate is still raging as to whether the current bout of US dollar weakness is merely a correction of the massive oversold positioning or perhaps the start of a consolidation phase. The outperformance of European data vis a vis the US data is behind the consolidation arguments.

USDCAD traded higher overnight due to a retreating oil price and general US dollar strength. (it has since come off) Oil traders have apparently concluded that the Saudi/Yemen hostilities doesn’t mean much for oil supplies and WTI has traded lower. EURUSD traded heavily in Europe with traders awaiting Monday’s revised Greek debt reform package. In the UK, BoE’s Mark Carney said that the next interest rate move is likely up. It wasn’t news.
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Being apathetic about currency exchanges rates can be very damaging for your business.

Let’s look at some of the dangerous myths that people cling to, to justify keeping their head in the sand.

1. What goes up must come down

Or the reverse: that a sinking currency must recover eventually. History tells us that movements in many markets tend to have cycles, but there’s no way of knowing when the tide may turn your way again. If you look at this graph of AUD/USD history (red line, with GBP/blue and EUR/green overlaid) there’s no obvious regular pattern of peaks and troughs.

will shepherd graph 200315
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EUR/USD Reversed direction, trading sharply higher last week as the FOMC Statement was interpreted by the market as more dovish than expected, and with mostly lower than expected economic data out of both economies. The week began on a positive note, with the rate gaining after making its weekly low of 1.0479 on Monday after ECB President Draghi stated in a speech that, “We are meeting against the backdrop of a steadily recovering economic situation in the euro area. Most indicators suggest a sustained recovery is taking hold. Confidence among firms and consumers is rising. Growth forecasts have been revised upwards. And bank lending is improving on both the demand and supply sides.” Continue reading

America’s influence is waning in the world, militarily, economically, and culturally. The global financial structure which has been in place for decades is unraveling and it will not end well for the United States’ currency and economy. This change is being driven by a desire of many nations with totalitarian capitalism to rid themselves of a reliance on the US Dollar which gives the U.S. power over them through threats to remove a country or institution from the dollarized financial system.

We’ve discussed the consequences to the dollar and America in previous posts as far as reserve currency status and interest rates are concerned and the severe problems they could bring. What I’d like to get across right now is the level of uncertainty which is building up across the global financial architecture.
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USDCAD spiked to 1.2830 on a weak Canadian Wholesale Sales report (-3.1% vs. -0.8% forecast) but has since retreated back to pre-data levels (1.2800). The Loonie was already back-tracking as oil prices continued to leak lower. (WTI $42.28/bbl) and a hawkish FOMC statement could be the straw that breaks the Loonies back. If the FOMC statement or press conference convinces traders that June is the likely lift-off date for US rates-that and falling oil prices will send the Loon to the moon.

In a surprise move, Sweden’s Riksbank cut interest rates by 0.15 bps to -0.25 to combat SEK strength which created a bit of a stir among USDSEK and EURSEK traders.

Elsewhere, patience is wearing thin over the incessant, intense chatter on patience in the FOMC statement. Enough already. Kiwi and Cable were the live wires overnight. Kiwi has recovered a good chunk of its losses following the poor GlobalDairyTrade auction. That is more a factor of pre-FOMC position adjustment than anything else. Cable got whacked on a combination of a soft employment report and on-going election jitters. The rest of the majors were content to idle within narrow ranges.


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The above views expressed in this market commentary are only views and not investment advice.This is for informational purposes only and we make no representations as to the accuracy or completeness and will not be liable for any errors or omissions. Agility Forex Ltd is registered (M13773887) with FINTRAC , Canada and headquartered in Vancouver British Columbia, Canada.

I learned from my years on the “street” to buy on the rumor, sell on the news. Well, the news for weeks now has been the European Central Bank (ECB) starting its quantitative easing program and the Federal Reserve Bank of the United States possibly raising interest rates to ward off inflation and bring America out of its free-money bliss. In fact, it seems that this sentiment has become a very crowded trade, pushing the dollar to levels not seen in over a decade.

However, this is now maybe an old story and judging from the PPI data today, the conventional wisdom could very well be wrong. The numbers that came out this morning showed a decline in the Producer Price Index when the consensus estimate was for an increase of 0.3%. Of even more importance is the fact that this was the fourth monthly decline in a row. The PPI is down over the last year where economists expected a flat reading.

This means that the pressure on the Fed to act might not be as strong as the “consensus” thinks it is. In other words, the dollar could have overshot versus the euro and could be due for a correction back to earth. The PPI weak numbers are also a consequence of a strong dollar themselves; the strong dollar increases import demand and puts a lid on import prices. So, the stronger dollar is a naturally correcting mechanism against inflation.

As far as Europe and the ECB are concerned, they remain mired in a deflationary spiral. The old boogeyman of structured labor markets and state control of the economy continue to keep the continent’s economy from growing. The emperor has no clothes when it comes to Europe. The eurozone governments simply will not push through the reforms that are needed to restart growth and unlock Europe’s potential. Greece is the perfect example and there are multiple, large, critical countries in the region that are right behind Greece when it comes to irresponsibility.

As expected, the ECB’s printing money campaign to buy European sovereign bonds has ignited the EU stock markets. But traders have already anticipated the dollar’s move against the euro, hence the high valuation level of USD/EUR. Yes, the euro may fall further and breach the “parity” level and that will be a big psychological barrier; in other words, I think that’s when you back the truck up as most likely the pair will go the other way eventually.

This is all happening against a backdrop of a recovering US economy. However, I don’t think the recovery is as strong as the market thinks either. America will not start really growing until it is clear we have a more business friendly administration on its way into office. This could be almost another two years from now. The growth for the U.S. economy over the last several years has mostly been from the fracking industry which is now cooling significantly. It will take a while for this weakness to percolate through the oil patch. The problem could get even more serious if oil continues to weaken down to a $30 handle as some are forecasting.

So start looking for an entry point to take the other side of the trade in USD/EUR.

The above views expressed in this market commentary are only views and not investment advice.This is for informational purposes only and we make no representations as to the accuracy or completeness and will not be liable for any errors or omissions. Agility Forex Ltd is registered (M13773887) with FINTRAC , Canada and headquartered in Vancouver British Columbia, Canada.

EUR/USD Continued its sharp decline last week as the ECB started its government bond purchase program and the market continued pricing in anticipated guidance for the Fed’s interest rate policy. The rate started the week consolidating at a slightly higher level after making its weekly high of 1.0906 on Monday after the ECB began purchasing bonds under its recently expanded QE program. Also, the Sentix Investor Confidence Index printed at a 7 year high of 18.6, significantly higher than the reading of 15.3 that was expected. The pair then began selling off sharply on Tuesday after speculation in the market that the Fed would remove the word “patient” from their upcoming statement next Wednesday, which would set the stage for a rate hike this summer. Economic numbers had U.S. JOLTS Job Openings at +5.0M, in line with expectations and French Industrial Production, increasing +0.4% m/m versus -0.2% expected. Continue reading

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Dictators don’t have a good track record of financial management. Just look at Russia, Venezuela, Argentina, etc. if you don’t believe me. Okay, China may be the exception but I don’t think the fat lady has sung there yet. Turkey is channeling Russia big time right now and this will not end well. Stay away from the lira.

The problem is the same tired old scenario that we are unfortunately seeing too many times around the globe these days. Of course the situation in Turkey has the special circumstance that we are dealing with the old Ottoman Empire right next door to the Islamic State and a rising Iran, but that’s another story altogether.
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EUR/USD Extended its previous week’s losses, closing at a level not seen since September of 2003 last week. The loss in the rate was in large part due to a better than expected U.S. Non-Farm Payrolls release and the ECB leaving rates unchanged and reiterating its stimulus program which begins this month. Then pair began the week making its weekly high of 1.1240 on Monday after Eurozone CPI Flash Estimate declined -0.3% y/y compared to an expected decline of -0.5%, while U.S. ISM Manufacturing PMI printed at 52.9 versus an expected reading of 53.4. The rate then consolidated on Tuesday after Spanish Unemployment Change declined -13.5K versus -10.5K expected and German Retail Sales increased +2.9% m/m compared to +0.5% anticipated. Continue reading

AUD/USD Fundamental Outlook
AUD/USD reversed direction in February, gaining +0.7% for the month overall. The increase in the rate was in part due to lower expectations of a possible U.S. rate hike and despite the RBA reducing its benchmark Cash Rate by 25 bps. Australian economic numbers showed strength in the housing sector, with Home Loans increasing +2.7% m/m compared to an expected +2.5%, while Building Approvals showed a decline of -3.3% m/m versus an expected decline of -4.8%.
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AUD/EUR Fundamental Outlook

AUD/EUR extended its previous month’s gains adding another +1.8 percent overall in February. The increase was in part due to the ECB beginning its QE program, the four month extension to Greece’s bailout loan, the interest rate differential and mixed numbers out of both economies. Australian numbers showed improvement in the Trade Balance, which showed a deficit of -0.44B compared to an expected deficit of -0.85B. Also, the Australian housing sector improved last month, with Home Loans increasing +2.7% m/m compared to an expected +2.5%, while Building Approvals showed a decline of -3.3% m/m versus an expected decline of -4.8%.
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USDCAD Overnight Range 1.2460-1.2620

The US dollar exploded higher against all the G-10 currencies on a surprising 295K gain in nonfarm payrolls that has traders chanting ”rate hike in June, rate hike in June. They may get disappointed later on, but for now they are on a roll. EURUSD was already heavy going into the data but still managed to drop another .0100 points from 1.0960 to 1.0860 in a flash. The details of the report were a tad less than stellar-hourly wages were weak and the January result was revised lower. But for now, no one cares.

The loonie got an extra whack with the bad news stick in the form of a weak Merchandise Trade report. The 2.8% decline in exports (due to the drop in oil) combined with the NFP data drove USDCAD from 1.2462 to 1.2620 in a flash.

However, it is not all doom and gloom for the Canadian dollar. The short term outlook for oil prices has improved and WTI is still above $50.00/bbl. Demand for Canadian dollars against EUR, GBP and JPY will help offset USDCAD demand. And, most importantly, USDCAD remains confined to the 1.2360-1.2660 range, intact since early February.
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EUR/NZD Fundamental Outlook

EUR/NZD lost significantly in February, declining an impressive – 5.4% for the month overall. The decline in the cross was in part due to asset flows favouring the Kiwi over the Euro, Greece accepting a four month extension to its bailout loan and the ECB’s unveiling of their QE program. Economic numbers in Europe were mostly mixed last month, with some improvement in Spanish and Italian PMI numbers, German Factory Orders and German and Eurozone Preliminary and Flash Quarterly GDP data. On the negative side were German Ifo Business Climate and German and French Flash Manufacturing PMIs.
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GBP/AUD Fundamental Outlook
GBP/AUD extended its rally in February, making it the fourth consecutive month of gains for the cross. The cross gained another +1.5% overall for the month. The increase was in part due to mostly better than expected UK economic data and asset flows favouring Sterling over the Aussie. UK economic numbers in February showed considerable improvement in employment, with Claimant Count Change declining -38.6K compared to an expected decline of -25.2K, while the UK Unemployment Rate dropped to 5.7% from 5.8%. Other highlights for Sterling were the Average Earnings Index, increasing +2.1% 3m/y versus +1.7% expected, and Services and Construction PMIs, both beating analyst estimates.
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NZD/USD Fundamental Outlook

NZD/USD gained ground last month, increasing an impressive +4.2% in February overall. The increase in the rate was in part due to the interest rate differential and mostly better than expected economic data out of New Zealand. Highlights for the Kiwi in February were the Trade Balance, which showed a surplus of +56M, significantly better than the expected deficit of -162M, Retail Sales, which increased +1.7% and the Core number increasing by +1.5% while Employment Change increased +1.2% q/q versus +0.8% expected, nevertheless, the NZ Unemployment Rate increased to 5.7% from 5.4%.
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Oz to me seems like a no-brainer. The Aussie dollar has been beaten down over a commodity slump and a rate decrease by the Reserve Bank of Australia in the face of the ECB’s quantitative easing program. But the real clincher has been the price action over the last few weeks. If you google Aussie currency news, and review the day to day articles, you will get an idea of what I am talking about. It’s enough to give a day-trader whiplash—Aussie dollar fades, Aussie dollar bounces, Aussie dollar beaten down, Aussie dollar rallies…

I call this a good-ole-fashioned consolidation. After almost reaching parity with the USD last summer, the Australian dollar is building a nice base here in the high seventies. Although the currency could obviously fall further against the USD if the world economy (and especially China) slumps further, I believe investors looks for good value should at least start watching the Aussie for a good entry point and maybe even start taking partial positions.
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The Reserve Bank of Australia have cut interest rates for the first time since August 2013 this week, abruptly ending a period of stability which saw rates remain on hold for a record long period. With the domestic cash rate now sitting at 2.25 percent, its lowest ever mark, the announcement has succeeded in spurring another bout of selling for the Australian dollar which plummeted to 0.7630 when valued against its US Counterpart, a level not seen in over six years.

Keeping in mind the majority of losses have now been re-captured previous support around the 80 US cents mark is now providing substantial resistance with the Australian dollar overall appearing stretched following a rally of any substance.
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There’s nothing that can throw cold water on irresponsible populist rhetoric than cold hard reality staring you in the face. It looks as though we are seeing this happen in Greece as we speak. Faced with imminent default, the Greek government stated over the weekend that they would pay their debts owed to the European Union.

With a conciliatory tone,the Greek Prime Minister said this, “The deliberation with our European partners has just begun,” Tsipras said. “Despite the fact that there are differences in perspective, I am absolutely confident that we will soon manage to reach a mutually beneficial agreement, both for Greece and for Europe as a whole.” In other words, Greek is looking to walk back some of the inflammatory comments after the election that caused Greek markets to tumble and drastically increased the market’s perception that Greece will not pay its debts.

The Greek situation is the biggest tail risk out there that could cause material volatility in currency markets. The problem is, it could go either way. If Greece swallows the red pill and refuses to abide by previously negotiated agreements, the tiny country would become the first domino in the destruction of the Eurozone as we know it today. Spain, Italy, and possibly others are watching with baited breath to see what happens as they would be right behind Greece in demanding their debts be forgiven or renegotiated. Then all bets are off and there will be unintended consequences in currency markets around the globe. The dollar will spike further.
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Well, what a week! I can’t remember seeing such sustained volatility in the markets for a long time. The over-riding theme remains the almighty dollar, currently at 6 year highs against the Loonie and 11 year highs against the Euro. Although everyone knew it was coming the sheer size of yesterday’s ECB QE announcement caused some shock and with concerns about the make-up of the next Greek government will ensure the Euro stays on the defensive for the foreseeable future. Those analysts that are calling for Euro parity with the USD could soon be proved right.

Canadian CPI came out yesterday and was none too pretty (-0.7%), clearly this was in the BoC’s thoughts regarding Wednesday’s surprise rate cut.
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