Canadian Dollar

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.  

An oveview of the technical condition of the major currencies.  Offered as a compliment to macro analysis.  

A review of the implications of the new deal struck on Cyprus. We think three of the worst pitfalls have ultimately been avoided--small depositors protected, orthodox seniority of claims respected, and extensive capital controls averted. The political will to preserve EMU has once again triumphed over ideological purity. We review the economic calendar for the week ahead.

An overview of the technical condition of the major currencies. See why we anticipate a heavier US dollar in the week ahead.

A weekly overview of the technical condition of a number of currencies against the US dollar. It is meant to compliment and supplement fundamental analysis. We retain a mostly favorable outlook for the US dollar, though skeptical of the scope for additional significant gains against the Japanese yen.

The US dollar rose to new multi-month highs against several of the major currencies, including the euro, Swiss franc, British pound and the Japanese yen.  The BOJ, BOE and ECB meet last week and none changed policy.  The Swiss National Bank meets on March 14 and is also unlikely to change policy.  The Federal Reserve meets the following week and is widely expected to stay its course.  It is not monetary policy then providing the new trading incentives. 

Nor can the dollar's gains be attributed to political uncertainty in Europe stemming from the inconclusive Italian elections, as was the case previously.   The immediate shock has worn off and Italian stocks and bonds have recovered the lion's share of those initial losses. 

• French unemployment rises again to highest since 1999 (Reuters)
• BoJ rejects call for monetary easing (FT)
• North Korea threatens pre-emptive nuclear strike against US (Guardian)
• Firms Race to Raise Cash (WSJ)
• Time Warner Will Split From Magazine Unit in Third Spinoff (BBG) - slideshows, kittens, "all you need to knows" coming to Time
• U.S. economy, world's engine, remains in "neutral": Fed's Fisher (Reuters)
• BOE Keeps QE on Hold as Officials Weigh More Radical Measures (BBG)
• Jobs start to go as US sequestration cuts in (FT)
• BofA Times an Options Trade Well  (WSJ)
• Congress Budget Cuts Damage U.S. Economy Without Aiding Outlook (BBG)
• Dell’s Crafted LBO Pitch Gets Messy as Investors Circle (BBG)
• Dell says Icahn opposes go-private deal (Reuters)
• Portugal Rating Outlook Raised to Stable by S&P on Budget Plan (BBG)
• China’s Richer-Than-Romney Lawmakers Reveal Reform Challenge (BBG)

The week ahead promises to be eventful. Three main items stand out: service sector purchasing managers surveys, five major central bank meetings, and the US employment data.

Overview of the drivers of the fx market, a discussion of the price action and a review of the latest Commitment of Traders report from the futures market.  Contrary to ideas that QE3+ is the dominant force and dollar negative, the net speculative position is now long dollars against all the major currency futures but the Australian dollar and Mexican peso.  The dollar's gains though appear to be a function of events outside the US.  

A dispassionate discussion of the impact of the sequester and implications for investors. I look also look at how the dollar has performed since QE3+ was announced and it is not what many might have expected.

Instead of looking at the daily bar charts for the major currencies that we provide every week, given the large moves, we thought it might be helpful to look at the longer term charts.  It is one thing for pundits and other observers to argue that QE drives currencies down, it quite another to operationalize and use that as a decision-making rule for investing or trading the foreign currencies.  The way people make money in the markets is not being right more often, but disciplined risk management.  Technicals allow one to quantify risk and admit where one can be wrong.  

While the sell-side has been vociferous about the fact that earnings are troughing, that consensus growth expectations are not miraculous, that equities are discounting that awesome reality; it appears Goldman Sachs' 'Swirlogram" - which we initially discussed here - is pointing to what we have been seeing for months - a slowdown in their global leading indicator dead-ahead.