Canadian Dollar

Tryingto make sense of the price action in the foreign exchange market.  The dollar was heavier than we anticipated and there is no compelling sign of a turnaround, but the key is the FOMC meeting.  

Here is my weekly outlook for the major foreign currencies.  Yes they are not backed by silver or gold, it is still the largest of the major captial markets at an estimated turn-over of some $4 trillion a day.  Yes, officials may try to guide the market directly and indirectly, but success is often elusive.   

It’s always a bit amusing to meet an investor making money in the markets right now who actually thinks it’s because he’s smarter than everyone else. Everyone knows the Fed’s quantitative easing program calls for them to buy $85 billion worth of bonds and mortgage backed securities each and every month. And the connection to market performance is clear. But, as is clear with USDJPY, Nikkei, and European sovereigns, the end of this exuberance is beginning to happen. All of this indicates that the leveraged investing herd seems to be squaring positions, going to cash, and paying back some of the USD-denominated debt they’ve borrowed. So far it’s all been an orderly move lower. And herein lies the trouble. Few investors are spooked right now because there is so much calm in the markets. But that calm can quickly turn into anxiety, which can quicly turn into all-out panic. It’s taken years (since 2008) to print so much money. This means that a market panic will unwind years’ worth of liquidity in a matter of weeks. It’s a financial tsunami that no investor should underestimate.

Outlook for the dollar and major foreign currencies in the week ahead.

Canadian Natural Resources Minister Joe Oliver said natural resources are the cornerstone of the federal and provincial economies. The U.S. economy, on the road to modest recovery, remains central to a Canadian oil market that relies heavily on exports. Oliver said at an investment conference in Quebec that the natural resources sector represents about 20 percent of the gross domestic product.  The Canadian economy has suffered, however, because there aren't many new conduits to get oil exports to foreign markets. The potential to reach Asian could provide a relief valve for the Canadian economy, while the option still exists to ship oil through the United States for exports. With opposition mounting along the borders, however, Canada's export-driven economy may become landlocked.

Price action in the foreign exchange market.  Discuss.

A look mostly at prices in the currency market and the outlook.   

The dollar rallied in the second half of last week, but looks set to consolidate first before extending the rally.  The yen was not the weakest major currency.  That dubious honor goes to the Australian dollar.  

A look at the price action in the foreign exchange market and the technical forces in the week ahead.  

FX market overreacted yesterday to ECB developments. Europe has corrected it and now participants will take a fresh look after the US employment report.

Overview of the price action in foreign exchange and outlook for the week ahead.  

Is the dollar trending or is it moving broadly sideways?

Japan is not facing much criticism at the G20 meeting and this is encouraging fresh yen sales, which in turn is helping lift other currencies. We play down the speculation that China will widen its dollar-yuan band imminently.

It is the yen, not the dollar, that is the key currency in the foreign exchange market.  

The downside technical correction in the dollar that we have been anticipating appears to have begun against most of the major currencies.  The drift lower against the yen over the past month has ended, and although we are skpetical of the impact of the stimulative monetary and fiscal policies in Japan, technically it is difficult to resist the momentum for additional yen weakness.