Category Archives: Forex News

USD/CAD drops below 1.32 on crude oil rally

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  • Crude oil gains traction in the US afternoon.
  • US Dollar Index moves sideways near 94.80.

The USD/CAD pair came under a heavy selling pressure in the last hours as the rising crude oil prices ramped up the demand for the commodity-sensitive loonie. The pair, which touched its highest level since June 29 at 1.3260, was last seen trading at 1.3175, losing 15 pips on the day.

Earlier today, after the weekly report released by the EIA showed a surprise 5.8 million barrels build in crude oil stocks in the United States, the barrel of West Texas Intermediate plummeted to its lowest level in nearly a month at $66.32. However, news of Venezuela's Amuay oil refinery shutting down one of its distillation units caused concerns over supply disruptions and allowed crude oil prices to gains traction. At the moment, the barrel of WTI was up 0.85% on the day at $67.75.

On the other hand, the US Dollar Index, once again, lost its momentum above the 95 mark and turned flat in the 94.70/80 area following the disappointing housing data from the United States. Investors are now focused on the Fed's Beige Book. 

“The minutes from the June FOMC meeting noted that “contacts in some Districts indicated that plans for capital spending had been scaled back or postponed as a result of uncertainty over trade policy.” Any additional evidence on disruptions caused by trade uncertainty will be of interest as the June minutes indicated that “most participants noted that uncertainty and risks associated with trade policy had intensified,” Nomura analysts wrote.

Technical levels to consider

On the downside, supports could be seen at 1.3170 (20-DMA/daily low) aligns as the initial support ahead of 1.3100/1.3095 (psychological level/50-DMA) and 1.3065 (Jul. 9 low). On the upside, resistances could be seen at 1.3200 (psychological level), 1.3260 (daily high) and 1.3300 (psychological level).

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US: Focus on Fed Beige Book today – Nomura

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Analysts at Nomura suggest that anecdotal evidence on trade tensions will be a key focus for the Beige Book prepared for the 31 July FOMC meeting.

Key Quotes

“The minutes from the June FOMC meeting noted that “contacts in some Districts indicated that plans for capital spending had been scaled back or postponed as a result of uncertainty over trade policy.” Any additional evidence on disruptions caused by trade uncertainty will be of interest as the June minutes indicated that “most participants noted that uncertainty and risks associated with trade policy had intensified.”

“At the moment, it appears that stimulative fiscal policy is offsetting the Committee’s angst on trade policy. However, further escalation in the US-China trade dispute, with a subsequent response from district business contacts, could eventually begin to tilt the balance of risk to the downside for some participants. However, apart from trade uncertainty, we expect the Beige Book to indicate sustained growth and solid employment gains given strong underlying momentum in the economy.”

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Brazil: Presidential race about to start – Rabobank

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Analysts at Rabobank suggest that the reduction in global risk appetite caught the Brazilian economy only halfway prepared, as the recent sell-off in national assets can tell.

Key Quotes

“If on one hand inflation readings, expectations are in-line with target and the external position is solid – with low current account deficit, hefty direct investment, huge FX reserves – on the other hand the opposite is true when it comes to the fiscal situation.”

“We continue to see the approval of macro reforms and maintenance of an orthodox policymaking as necessary conditions to stabilize government debt, consolidate the convergence of inflation and interest rate to international levels, and generate sustainable growth.”

“In our view, these elements make this year’s general election the most important conditioner for the outlook of Brazilian economy and markets. Now even more so amid such less friendly global conditions. At this stage, however, the political scene still looks very fragmented and the outlook for the presidential race still looks quite fluid.”

“Uncertainty about this year’s general elections is to set a (possibly greater) toll on the economy, as it contributes further to worsen financial conditions, already hit by a globally led rout.”

“Under our (increasingly challenged) baseline assumption of a reformist administration taking office next year, we expect declines in Brazilian risk premia and BRL appreciation towards 3.70/USD (down from our currently estimated short-term fair value of 4.10…as BCB’s FX swaps will likely unwind).”

“In opposite direction, a populist (or anti-reformist) macro agenda would lead to massive idiosyncratic deterioration in Brazilian assets (e.g. FX rate through 5.00), de-anchoring of inflation expectations, loss of confidence by business and consumers and another recessionary tumble.”

“In the next few weeks before the start of the electoral campaign (mid-August), political alliances will shape up and tickets will be formed. The news flows (including developments in electoral surveys) will help determine which way economic expectations and asset prices will head before October.”

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US: Expect a 4.4% decline in housing starts in June – Nomura

Analysts at Nomura expect a 4.4% m-o-m decline in US housing starts to 1290k saar in June.

Key Quotes

“The strong labor market suggests that consumer demand for new housing likely remained firm. However, structural factors such as ongoing shortages of skilled labor and a lack of developable lots will likely weigh on construction of new single family housing. Moreover, permits for single family housing declined in May, pointing to slower starts in June.”

“In addition, we expect sharp mean reversion in multifamily housing starts in June, which increased sharply by 7.5% m-o-m in May. On permits, we expect a 1.3% m-o-m increase to 1318k saar in June as permits for multifamily housing construction could revert. However, continued slowing in single-family permits in the West could weigh on the reading for June.”

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China: Growth slowdown story remains intact – Nomura

Analysts at Nomura suggest that based on detailed Q2 GDP breakdown data of Chinese economy which was released by the National Bureau of Statistics, they estimate the contribution from service sector to real GDP growth declined to 4.1 percentage points (pp) from 4.2pp in Q1, while that from primary and secondary sectors remained largely unchanged.

Key Quotes

“By industry, output growth in construction and property services sectors dropped by 1.4pp and 0.7pp, respectively, to 4.0% y-o-y and 4.2% in Q2, consistent with the recent slowdown in property investment and sales; that in wholesale & retail sales sector also slowed, by 0.2pp to 6.6% in Q2, likely weighted on by the rapid build-up of household leverage.”

“That said, we see a continued momentum building in new economy components.”

“We continued to expect a growth slowdown ahead, mainly due to headwinds from weakening end-demand, rising credit defaults, a problematic property sector, and escalating ChinaUS trade tensions.”

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