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Looking For Volatility? Watch $Cad After Canadian CPI

Monday January 27, 2014 08:35

Two opposite themes stood out on the FX market yesterday during the NA session:

  1. A much lower U.S. dollar, helped by low U.S. yields and the original Euro$ rally from the strong Euro-zone PMI numbers. The massive drop in U.S. stocks also helped crush the U.S. dollar against the yen as the carry trade faded.
  2. Commodity currencies did NOT follow the U.S. Dollar drop and actually went the other way. It all started with China’s weak numbers in the overnight. Ironically, most commodities traded strongly, especially precious metals and oil.

This kept going into the overnight where it seems emerging markets (especially Ukraine, Argentina and Turkey) are now weighing heavily on traders’ minds with a flight to quality towards bonds, the euro, the yen and precious metals. Stocks across the globe are feeling the pain. The U.S. dollar is currently lower against the vast majority of the currencies out there except…the aussie. The pair continued its downfall when the RBA Governor simply stating that, just like BoC did earlier this week, its currency is too strong and a price of “around 0.8000 would be a fair deal for everybody”.

Well, that is almost another 9% drop from the current level… Like the CAD, it will be hard to trade the aussie against the central bank’s calls for devaluation. With the China story, Emerging Markets collapse and currency devaluation talks from a few central banks, volatility will drastically start to pick up. This should be interesting times. Be nimble.

We get no data out of the U.S. but it’s a whole different story with Canada and…CPI is coming out. I think regardless of the number (expectations are at 1.4%, which is a stronger number than November), there will be a lot of volatility in $CAD especially since they put so much weight on it during the BoC rate decision this week.

The short Euro$ trade initiated at 1.3890 and 1.3720 is dead… for now anyways. I believe that as long as the pair remains below the 2008 bearish trend line the Risk/Reward is to be short. How? I would try again on a higher rebound into the 1.3800/1.3900 area where the 76.4% fib is and the daily trend line. At these current levels I have no interest and no clear view.

Good Luck

By Hugo Murphy
Trader
Kitco Metals Inc.

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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