FOPLADE- Análisis Financiero


CAD’S OUTLOOK IS BRIGHT; EXPECT USDCAD TO TEST LOWS CFTC data highlights sentiment change against EUR, but still bullish CAD.
-Our bearish USDCAD outlook is summarized in the CAD section.
-Eurozone inflation rebounding rapidly but ECB will be restrained by weak core.
-FT article puts focus on problems for the US at the state level, a USD negative.
-Yen seems untroubled by Finance Minister Fujii’s health problems.

FX Market Update

Markets are mixed today, with equities flat, commodities mixed and currency markets fairly quiet. CAD and JPY are the best performing currencies, with GBP and SEK losing the most ground. The FT has run an article titled “US public pensions face $2,000bn deficit”, which has attention focused on the hurdles that the US faces at the state level - certainly a USD negative.
• Yesterday’s USD weakness was accelerated by dovish comments from both the Fed Chairman and the Fed’s Kohn, which pushed the expectations for Fed interest rate hikes further out into 2010. The August Fed funds futures contract dropped 7bpts and the December contact dropped 11bpts, putting downward pressure on the 2-year bond yield and the USD. We think the Fed will be less aggressive than many currently believe, which will put ongoing pressure on the USD early this year.
• However, we do believe that sentiment drives near-term FX changes and it is hard to ignore the sea-change that has occurred against EUR. Sentiment has violently shifted against the EUR, while it has remained bullish CAD and the other commodity currencies. This week’s CFTC Commitment of Traders report highlights this well, as EUR is now the largest short position held against the USD at $6.1bn and CAD is the largest net long position held at $3.8bn - see top chart. Until we see sentiment begin to come back in favour of EUR, it will be difficult for it to mount a sustainable rally. Still as we look out to 2010, we think the USD will close this year at lower levels than it closed 2009. The pressures against the USD are real. Large and growing deficits, a dovish central bank and a shift away from the USD as a reserve and trade currency are not generally the recipe for currency strength over the medium term.
• Today the US will release factory orders and pending home sales, but the highlight will most likely come early when the Fed’s Hoenig speaks at 8am EST. C.S.

Americas

USDCAD (1.0356) • CAD is the best performing currency today, rallying 0.6% against the USD and gaining against all the majors. • Since EUR reached its high of 1.5144 on November 25th, it has fallen -5%, GBP has dropped -4%, AUD has lost -2% and CAD has managed to rally 1%. There are two sides to the near-term outlook for USDCAD: 1) it is on the verge of rallying to play catch up with recent USD strength or 2) it is dropping for valid reasons and will continue to march towards parity. We are USDCAD bears (CAD bulls), though we struggle with how much USDCAD could really drop in the midst of a broad based USD rally. When we look at the drivers of USDCAD we think most point to ongoing weakness (CAD strength) in the weeks ahead. Commodities are rallying, with the CRB index at a new 14-month high and oil having broken back above $80/barrel and flirting with the October high of $82/barrel. After moving in favour of USDCAD for the last two weeks of December, the spread between the US and Canadian two-year bond yield has moved 7.5bpts against USDCAD. Relative fundamentals, with reasonable growth prospects, a more controlled deficit and a large commodity base, are all supportive of CAD. In addition, the Bank of Canada is expected to enter an interest rate hiking cycle at the same time as the Fed, which should prove a neutral driver for USDCAD. Technically, USDCAD is trading bearishly below its 50, 100 and 200-day moving averages (1.0573, 1.0641, 1.1058, respectively). Finally, sentiment remains bullish CAD, with a plethora of buy CAD recommendations coming out. We think we will see a test of the UDSCAD October low of 1.0207 in the coming sessions, that USDCAD will move sustainably to parity by mid-year and that by year-end it will be trading at 0.97. C.S.

Europe

EURUSD (1.4422) • The euro is a marginal gainer today at +0.1% against the USD, having lost ground that earlier saw EURUSD trade to the upper end of the 1.44’s. There has been some notable economic data out of the Eurozone today as the flash December CPI estimate came in at 0.9% y/y, on market expectation but also the most rapid positive rate of price change seen since March of 2009. It still may not be the kind of increase that would shift market expectations more bullishly towards ECB rate hikes as other monetary figures are showing no real inflationary impetus, not to mention the fact that core inflation is still looking quite depressed (see chart). • The change in German unemployment came in better than expected in December (at -3K vs. 7K expected), but the revision to the previous month’s data almost left the two month cumulative result as flat, but still a marginally positive result. • After almost testing down to its 200-day moving average yesterday, EURUSD reached a new two-plus week high before weakening off today, though the pair is still holding above its North American close yesterday. EURUSD is beginning to build upside momentum once again, though 1.45 (and sentiment) will be a key hurdle to this incipient attempt higher. S.T.
GBPUSD (1.6016) • Cable has weakened sharply in European trading as it is currently trading above (though has also been briefly through)1.60, leaving GBPUSD down 0.4%. GBP currently gives no reason to get excited about it ahead of this week’s BoE announcement which is expected to bring no change in policy. The service sector PMI data tomorrow will be a key release as well as it has shown some hesitance to move further into expansionary territory, but with yesterday’s manufacturing PMI result coming in more positive than expected, we could get an upside surprise. Sterling has lost significant ground over the past two sessions to the euro after EURGBP (now at 0.9005) had traded back down to near its two month low last week. S.T.

Asia / Oceania

USDJPY (92.04) • The yen is up 0.5% against the USD and is attempting its second consecutive daily gain after losing ground over the previous week. The yen seems to be able to gain despite uncertainty over the ability of Japanese Finance Minister Fujii to effectively execute his duties in light of health concerns. Upside momentum in USDJPY is rapidly eroding, along with rate support as the 2-year US-Japanese rate differential has deteriorated. Without further increases in rate differentials to sustain momentum, or at the very least to hold support, USDJPY risks having already topped out in the near term. S.T.


Commodities

Oil ($81.61) • Crude sits near yesterday’s close after coming within one cent of matching its 1-year high at $82. Later on in the North American afternoon the market will get a look at the latest API oil inventory data which has been biased towards showing (on average) inventory reductions in Q4, though at a less robust rate than in Q3, in line with the pattern displayed by DoE crude inventory behaviour. S.T.
Gold ($1121.45) • Gold gained 2.2% yesterday, the largest gain in two months, a price reaction that can be traced to yesterday’s sharp USD losses. After showing some stability around the $1100 level following the metal’s retreat from 2009 highs of $1226.56, fundamental drivers like USD weakness and general commodity buoyancy should play a greater role in gold’s near term price development. S.T.

Suggested Reading

US Public Pensions Face $2,000bn Deficit, Francesco Guerrera & Nicole Bullock, FT (January 5, 2010) World Factories Rebound, Justin Lahart, WSJ (January 5, 2010) The Fear of Capital Controls, David Roman, WSJ (January 5, 2010) Asia Must Loosen the Grip of its Exporters, Lorenzo Bini Smaghi, FT (January 5, 2010) Darling and Brown at odds over deficit, George Parker, David Oakley, FT (January 4, 2010) Greece May Borrow Privately Through Banks this Month, Anchalee Worrachate, BB (January 5, 2010)




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The Plaza Futures Group


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