GLOBALFXSTRATEGY

DAILYFXUPDATE
Wednesday,May7,2014
CAMILLASUTTON,CFA,CMT
ChiefFXStrategist,ManagingDirector
T.416.866.5470
camilla.suon@scoabank.com

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USDLOOKSTOCHAIRYELLEN
USD weakness failed to be carried into the European and Asian ses
sions;relavelyquietstartleadingintoChairYellenstesmony.
CAD hangs onto its recent 1% rally; improving fundamentals, broad
USDweakness&CADshortcoveringwerekeydriversofrally.
CADBoClikelytogrowincreasinglycauousonrallyingCAD.
EURisataersodata&leadingintoThursdaysECBmeengwe
expectnochangebutadovishtonesenguppotenalaconinJune.
GBPisat,failingtobreakabove1.70,butsllelevated.Limiteddata
todayleadingintoThursBoEmeeng,expectedtobenonevent.
NOK is up sll irng with ytd highs leading into Wed Norges Bank
decision,widelyexpectedtoholdratesat1.5%.
JPYisat;nosurprisesinBoJminutes.
AUDisstableleadingintowhatisexpectedtobeweakemployment.
NZDisweakasGovStevensremindsmarketsaboutintervenon.
CNYisso&volaleleadingintothereleaseofAprilstradedata.

FX Market Update A lack of follow through of yesterdays USD weak

ness is a warning but the downward trend remains strong (see chart).
Event risk today is centered on Chair Yellen, who will provide the eco
nomicoutlooktothejointeconomiccommieeofCongress.Sheislikely
to strike a relavely neutral tone, highlighng the improvement in the
headlinelabourdatabutnonghowslowwagesandotherlabourmet
ricshavebeentoturn;whileinaonremainscontained.Thetakeaway
is largely expected to be that tapering is on course, that interest rates
will begin in Q215, that the pace of hikes once they start is likely to be
slowandthattheU.S.economyhasimprovedbuttherearesllhurdles
ahead.Muchofthisislargelypricedintomarkets.C.S.

USDCAD(1.0885)CADisup0.1%sinceyesterdaysclose,havingrallied
1%sofarthisweek.BroadlybasedUSDweakness,recognionthatonce
started the Feds hiking cycle will introduce rate hikes only gradually,
strongerCanadiandomescfundamentals,amoreposivelightforCan
adas oil sector (see WSJ arcle suggested readings and chart) and CAD
shortcoveringhaveallworkedinfavourofCADoverthelastthreeses
sions.C.S.

From here we expect USDCAD will struggle to sustain a break below

1.0800. The lower USDCAD trends (stronger CAD) the more concerned
over the outlook for exports the BoC will become and the more Gover
nor Poloz is likely to vocalize that. However, the already sustained CAD
weakness (down 11% since its 2013 lows) combined with a strengthen
ingU.S.recoveryareapowerfulcombinaonfortheCanadianeconomic
backdrop.Accordingly,USDCADcouldtemporarilytakeoutitsAprillow
of1.0858,butisunlikelytosustainabreakbelow1.08;unlessthereisa
signicantshiattheBoC,whichisnotpartofourbasecase.C.S.

USDCAD shortterm technicals: bearishas moststudieswarnofdown

side (see table) and theRSI at just 35 is a long wayfrom oversold. Sup
port comes in at the April low of 1.0858, which is also a Fibo level fol
lowed by the psychological 1.0800; while resistance lies at congeson
centeredonTuesdaysopenat1.0955.C.S.

DXYFLIRTSWITHBREAKOFOCTOBER2013LOW
FXRETURNSYEARTODATEAGAINSTUSD
CADPOSITIVEOILPRICINGINCDNFAVOUR
Source:Bloomberg&ScoabankFXStrategy
Source:Bloomberg&ScoabankFXStrategy
Source:Bloomberg&ScoabankFXStrategy
Brent
WTI
WesternCdnSelect
SpreadbetweenBrentWCS;thelowerthe
morefavourableforCAD
Low=78.998

Wednesday,May07,2014
2
GLOBALFXSTRATEGY
SuggestedReading
TheECBandinaon:pleaseease,P.W.,TheEconomist(May6,2014)Inaonislowandexpectedtoremainlowforlong,raisingtherisk
thatanunforeseenupsetpushesthecurrencyclubintooutrightdeaon,anightmareforitsdebtladeneconomies.
ThinktankseesworkaroundforECBbondbuys,B.Blackstone,WSJ(May6,2014)BuyingthebondsofEuropeaninstuons,liketheEuro
peanstabilitymechanismandEuropeaninvestmentbank,mightmakesensefortheECBaslowinaonisparcularlydangerousinEurope.
ECBexpectaons:beerthantherealthing?,R.Barley,WSJ(May6,2014)TheappeteforEuropeandebtmaycomedowntoinvestors
ancipangmoreaconbytheECB,meaningthemarketislooseningpolicyfortheECB&makingECBexpectaonsaspowerfulasacon.
GapbetweenCanadian,U.S.oilpricenarrows,N.Friedman,WSJ(May7,2014)Canadianoilpricesaresurging,narrowingthegapwithU.S.
crude,asnewpipelinesconnectproducerswithpreviouslyhardtoreachGulfCoastreneries2,000milestothesouth.
GBPUSD shortterm technicals: bullish
and not overbought suggesng that a
break above 1.70 is likely in the near
term.C.S.

USDJPY (101.55) USDJPY is at to yes

terdays close sll trading at the lower
end of its 3 month range of 101.20 to
104.13. The BoJ minutes suggest broad
agreement that inaon pressures are
present,buttherewerefewsurprisesfor
markets.C.S.

USDJPY shortterm technicals: bearish

however support at the low of the 3
month range at 101.20 is strong. Beer
risk/rewardelsewhere.C.S.

NZDUSD (0.8665) NZD is weak, having

retraced all of yesterdays gains, it is en
tering the NA session down 0.8%. The
depreciaon has been on the back of
three drivers: 1) a dovish speech by Gov
ernor Wheeler; 2) followed by disap
poinng employment, where the unem
ployment rate rose came in at 6.0% and
averagehourlyearningswereso;and3)
disappoinngEuropeandatawhichdrove
asmallupckintheUSD.C.S.

RBNZ could intervene in FX: NZD is the

strongest currency ytdsee chart. Yes
terdays speech by Governor Wheeler
wasclear:theRBNZseesNZDasoverval
uedanddoesnotbelieveitscurrentlevel
is sustainable. If it remains strong it will
be reected in low or negave tradables
inaon, which will slow interest rate
hikes; nally if NZD remains high even in
the face of worsening fundamentals, it
would be opportune for the RBNZ to in
tervene in FX markets. The focus on the
level of NZD in his speech explains why
mostofthedownsidepressurehascome
in NZD; while expectaons of further
interest rate hikes remain relavely sta
ble,pricingintwohikesoverthenext12
months.WeholdaQ214forecastof0.86
andayearendtargetof0.85.C.S.
EURUSD (1.3925) EURhasstabilized,aerfailingtobreakabovetheMarch13thyeartodate
high of 1.3967 and is entering the NA session at to where it closed. So data in the European
session, including weak industrial and manufacturing releases from France and disappoinng
German factory orders combined with tomorrows ECB event risk has helped take EUR from its
highs.C.S.

WeexpecttheECBtoholdpolicy,leavinginterestratesat0.25%,butadovishtonedeliveredby
President Draghi. Of the 58 economists polled by Bloomberg, only two see an interest rate cut
however the market is pricing in a slightly larger risk of policy acon. Our analysis is below (as
wellasdierentdetailsinyesterdaysmorningdocument);wedonotexpectaninterestratecut
orthelaunchofQE.C.S.

Interestratecutwouldbeappropriateonthebackofaghteningofmonetarydynamics,either
fromshortrates,ahigherEURordevelopmentsinglobalbondmarkets.TheEURishigher(atthe
lastmeengitwasat1.37andhasnowralliedto1.39);howeverwedonotforeseethisasstrong
enoughtojusfyaratecut.C.S.

An asset purchase (QE) program would be warranted if there was a worsening in the medium
termoutlookforinaon,wehighlightedyesterdaythatitisarguablethishasoccurred;however
with high frequency data suggesng building growth momentum and a boom in CPI likely al
readyformedtheECBhasenoughreasontotakeawaitandseeapproach.Finally,onApril28th
(less than two weeks ago), President Draghi suggested that QE is a viable policy tool but isn't
imminent.AccordinglywedonotexpectthelaunchofQE.C.S.

EURUSD shortterm technicals: bullishasmoststudieswarnofbuildingupsidemomentum.The

yeartodatehighof1.3967isthemostobviouslevelfollowedby1.4000,whereEURlasttraded
atinOctober2011.Supportliesatyesterdaysopenof1.3875.C.S.

GBPUSD (1.6965) GBPhasfadedslightlyfromitshighs,slltryingtobreakabove1.70,butso

farstrugglingtodoso.Weexpectaneartermtestuptotheselevels.ThursdaysBoEmeengis
likelytoproveanoneventwithnochangetopolicy.C.S.
TECHNICALS:BUY/SELLSIGNALSANDPIVOTLEVELS
30Day
Hi stVol
Spot MACD
9&21
dayMA
DMI RSI
Pi vot1st
Support
Pi vot1st
Resi st.
USDCAD 4.7 1.0884 sel l sel l sel l 35 1.0852 1.0939
EURUSD 3.5 1.3929 buy buy buy 63 1.3884 1.3963
GBPUSD 4.0 1.6964 buy buy buy 74 1.6887 1.7018
USDCHF 4.3 0.8744 sel l sel l sel l 37 0.8717 0.8776
USDJPY 6.0 101.55 sel l sel l sel l 38 101.26 102.02
AUDUSD 6.3 0.9341 sel l sel l buy 58 0.9285 0.9382
USDMXN 5.0 13.03 buy buy sel l 46 12.99 13.07
DXY(USDi ndex) 3.4 79.11 sel l na sel l 33 78.94 79.40
EURCAD 5.8 1.5161 sel l buy sel l 45 1.5114 1.5232
GBPCAD 5.0 1.8465 sel l buy buy 52 1.8427 1.8537
AUDCAD 6.1 1.0167 sel l sel l buy 46 1.0140 1.0206
CADMXN 5.3 11.97 buy buy buy 59 11.92 12.01
BoCNoonRate 1.0890 Source:Scotiabank&Bloomberg
May07,2014

Wednesday,May07,2014
GLOBALFXSTRATEGY
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CONTACTSGLOBALFXSTRATEGY
Pleasecontactauthorsdirectlytobeaddedtodistribuonlists
CamillaSuon,CFA,CMT
ChiefFXStrategist,ManagingDirector
T.416.866.5470
camilla.suon@scoabank.com

EricTheoret
FXStrategist(G10),AssociateDirector
T.416.863.7030
eric.theoret@scoabank.com

EduardoSuarez
SeniorFXStrategist(LATAM),Director
T.416.945.4538
eduardo.suarez@scoabank.com

SachaTihanyi
SeniorFXStrategist(ASIAexJapan),Director
T.852.2861.4770
sacha.hanyi@scoabank.com
CONFERENCECALLFXOUTLOOK
PleasejoinusforourFXoutlookforEUR,GBP,CADandAUD,presentedbyCamillaSuon,ChiefFXStrategist.

Thispresentaonisnowavailableatyourconvenience.

Theprerecordedwebcastisavailableat:hps://cc.callinfo.com/cc/playback/Playback.do?id=1bhu4a
TODAY'SRELEASES&SPEAKERS
Ti me
(EST)
Country Rel ease Peri od Consensus Last Si gni fi cance
08:30 CA Bui l di ngPermi tsMoM Mar 4.00% 11.60% med
08:30 US NonfarmProducti vi ty&Uni tLaborCosts 1QP l ow
10:00 US FedChai rYel l enTesti fi estoJoi ntEconomi cCommi ttee HIGH
13:30 UK BoEFPCOffi ci al AndyHal danespeaks;notext,Q&Aunknown med
15:00 US ConsumerCredi t Mar $15.500B $16.489B l ow
19:01 UK RICSHousePri ceBal ance Apr 55% 57% medhi gh
21:30 AU Empl oymentChange Apr 9.5K 18.1K medhi gh
21:30 AU Unempl oymentRate Apr 5.90% 5.80% med
CH TradeBal ance Apr $18.20B $7.71B medhi gh
CH ExportsYoY Apr 2.00% 6.60% medhi gh
CH ImportsYoY Apr 2.00% 11.30% medhi gh
02:00 GE Industri al Producti onSAMoM Mar 0.20% 0.40% medhi gh
04:00 NO Deposi tRates 8May 1.50% 1.50% HIGH
07:00 UK BankofEngl andBankRate 8May 0.50% 0.50% HIGH
07:45 EC ECBAnnouncesInterestRates 8May 0.25% 0.25% HIGH
07:45 EC ECBMargi nal Lendi ngFaci l i ty 8May 0.75% 0.75% HIGH
07:45 EC ECBDeposi tFaci l i tyRate 8May 0.00% 0.00% HIGH