The schedule is set to pick up over the course of the day with some key data releases due out, including US NFPs and Canada employment data. But for now, all is relatively quiet with currencies locked in a holding pattern ahead of the anticipated risk. We were somewhat surprised to see the ECB fail to expand its covered bond program on Thursday following the rate decision, and it is interesting to see the difference between the ECB and Fed in terms of their respective reactions to market expectations. While the Fed has looked to accommodate investor expectation for more QE, the ECB has stood its ground despite pressures to ease policy further. In our opinion, and we have said this in the past, the Fed should be less concerned with investor demands, while the ECB should be more concerned. While the US economy does have a ways to go, it is still showing signs of recovery. Meanwhile the situation in the Eurozone appears to be dire, and as such, it would seem that the ECB should be looking to accommodate further.
Moving on, we established a long position in USD/CAD on Thursday at 1.0070 (stop-loss 0.9970), and the market has not been helping our trade to this point with the position currently under water. When we glanced over at our in-house Speculative Sentiment Index (SSI), which tracks the ratio of long to shorts in all of the major currencies, we were shocked to see that the ratio of long USD/CAD positions now sits at a dramatic 8:1 (all other currency pairs are 3:1 or lower). The SSI is used as a contrarian indicator and as such, on the surface, the ratio would suggest that there is still more room for USD/CAD weakness. However, because the ratio is so out of whack, we are somewhat comforted by this fact, as it is most likely overdone and on the verge of correcting. Our analysis shows that as the ratio drops, USD/CAD would probably be moving higher as retail traders tend to bail out of favorable positions quite early. The other possibility of course, is that the market drops sharply on Friday to flush out all of the longs before finally turning back up. We of course do not support this scenario.
Looking ahead, Swiss inflation data is due at 8:15GMT, followed by German and Eurozone services PMIs at 8:55GMT and 9:00GMT respectively. UK services PMIs and official reserves are then out at 9:30GMT, with Eurozone retail sales capping things off for the European calendar at 10:00GMT. US equity futures and commodities are tracking marginally higher into European trade. US equity futures and oil prices are tracking moderately lower on the day, while gold prices diverge and are showing bid.
Written by Joel Kruger, Technical Currency Strategist
www.dailyfx.com
No comments:
Post a Comment