Canadian Dollar

The world has depended on Chinese and American stimulus for years, and, as Caixin's Andy Xie notes, one implication of their tightening is a slowing global economy in 2014.

Dolllar weakess is largely concentrated against euro and sterling and those handful of currencies that move in their orbits.  The US dollar is firm against the dollar-bloc and yen and many emerging market currencies.  

A look ahead into 2014.  

From the first headline to the last, the following brief month-by-month summary of the year shows just how far markets and global happenings have come...

FX outlook through the end of the year...

Overview of market positioning and technical indicators on the eve of the FOMC meeting.  

While the perma bears may find comfort in the dollar's decline, its weakness has not been very broad, but really limited to the euro, sterling and currencies that move in their orbit.  Still further dollar declines look likely near-term.  

Overview of the near-term outlook for the major currencies.  

It's one thing to fade broad Goldman trade recommendations (and thus trading alongside Goldman and against muppets). It is, however, a gift from god when such a trade comes from none other than the greatest (once again, if you bat 0.000 or 1.000 on Wall Street you are great in both cases) FX strategist of all time: Goldman's Tom Stolper, whose fades over the past 5 years have generated over 20,000 outright pips. So what does Stolper see? "All told, there are a number of reasons why the Canadian Dollar has scope to weaken. Some of these have been a factor for some time but the notable weakening in the external balance, the gradual shift in the BoC communication and the prospect of Fed tapering and the associated risks all suggest that 2014 may be the year when the CAD weakens more materially after many years in narrow trading ranges. In line with our recently changed forecasts, we expect $/CAD to rally to 1.14 on a 12-month basis, with a stop on a close below 1.01. This would imply a potential return of 7% including carry." So one Goldman 2014 Top Trade generates a total return of 7% in 12 months - and one should do this why when one can make 7% in the Russell 2000 at its current daily pace of increase of 1.0% in one week. That said, the only question is: 1.01 in how many days?

An overview of the near-term US dollar outlook.  Not thinking it is crashing and burning next week simply because it is not backed by gold or because the Fed is engaged in QE.  

The US dollar looks vulnerable to additional losses next week.  While we had correctly anticipated the greenback's losses last week, we had expected it to begin recovering ahead of the weekend.   This did not materialize and, leaving aside the yen, the dollar finished the week near its lows.   Generally speaking, the technical outlook for the greenback has soured and, in fact, warn of some risk accelerated losses in the period ahead.  

As suggested here last week, the dollar moved higher over the past five sessions.  Although it finished the week on a firm note, I suspect we may have a pullback before seeing higher levels.    Here is why.

Just when the dollar's last rites were being considered, it has bounced back and looks poised to move higher in the days ahead.

Overview of the price action in the fx market.

It may seem counter-intuitive but the US dollar appreciated last week, despite the partial closure of the Federal government, the heightened risk of default and the nomination of Yellen.  The dollar can move higher next week too.