USD Goes Defensive As US Data Misses, Canada’s Economy Is Red Hot
- DXY bounce was short-lived as EU, CA data beats estiments while US data weakens further
- CAD GDP showed seven straight months of gains, BoC’s October rate odds at 74%
- Crude and Brent Oil settle to close the week with a 9% gain, showing the best week of 2017
- Sentiment Highlight: Crude Oil net-short positions rise ~78% week over week
The saying goes that even if you drop a dead cat from high enough, it will bounce. The ‘dead cat bounce’ phenomenon played out well for the USD yesterday, which fell on Friday after a Q2 annulaized GDP miss with expectations for 2.7% were met with 2.6% actual. The Dollar likely would have received more ridicule towards week end if it weren’t for the dual effect of month-end flow and likely short covering after a dovish Fed. Another market development that has softened the blow of the USD’s fall is the even weaker Swiss Franc. Against the EUR, the CHF fell by more than 3% on the week. For the swissy alone, this accounts for the biggest weekly decline in over two years.
USD/CAD was trading just north of parity (meaning a much strong CAD/ weaker USD) the last time we saw this much strength in the Canadian Economy. Friday morning showed the Canadian economy had experienced its seventh straight month of gains in May, which boosted the already likely chance of another rate hike in October by the Bank of Canada with markets pricing in the odds of nearly ¾. The expectations on Friday for quarterly Canadian GDP was 0.2%, but 0.6% was the final number, which indicates an annual growth YoY at 4.6%. While the USD falls, the CAD gains, and continues to trade closer to 1.23 and the lowest levels since mid-2015. Not to be missed in Canada’s GDP numbers is the strong performances of mining, quarrying, and oil and gas extraction sectors. Such a development helps favor the argument for further gains in commodity currencies, emerging markets, and the commodity sector as a whole.
Recommended DFX Event: US GDP Round Table Coverage
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Crude Oil Bulls will look back on this week fondly as they write in their diaries. Nearly everything that could have gone right, did, in fact, do so. At the opening of the week, news rang from St. Petersburg that Saudi would deepen their efforts to rebalance the oil market by cutting exports in August, and shortly after, the UAE & Kuwait followed suit. If that was not enough, Saudi went on to say that they would look to ‘forcefully demand participation of all’ when speaking of falling compliance to the production curb that is set to last until March 2018. Couple this with an EIA inventory report on Wednesay, and you have Brent and WTI with their best week of 2017 with 9% gains, and trading at 2-month highs. All of this aligns with the sentiment picture (explained below) that favors further upside in energy.
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FX Closing Bell Top Chart: EUR/CHF goes parabolic trading at the highest levels
since January 2015
Chart Created by Tyler Yell, CMT
Next Week's Main Event:BoE meeting and Inflation Report. August 3
IG Client Sentiment Highlight:US Oil net short positions rise ~78% Week over Week
The sentiment highlight section is designed to help you see how DailyFX utilizes the insights derived from IG Client Sentiment, and how client positioning can lead to trade ideas. If you have any questions on this indicator, you are welcome to reach out to the author of this article with questions at firstname.lastname@example.org.
Oil - US Crude: Retail trader data shows 41.4% of traders are net-long with the ratio of traders short to long at 1.41 to 1. The number of traders net-long is 3.9% lower than yesterday and 32.6% lower from last week, while the number of traders net-short is 22.2% higher than yesterday and 78.7% higher from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests Oil - US Crude prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil - US Crude-bullish contrarian trading bias.(Emphasis mine)
Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com
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