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Bank Of Canada Slashes Rates |
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Bank of Canada Slashes Rates to Lowest Since Bank's Founding in 1934 The Bank of Canada cut rates in line with expectations by 50 basis points to 1.00 percent, which marks the lowest level since the bank was founded in 1934. Meanwhile, the bank's concurrent press release left the door open for further rate cuts as they said that further monetary stimulus may be needed since total CPI is expected to fall negative for two quarters in 2009 due to falling energy costs while Canada's economy is forecasted to contract through mid-2009. However, the bank also said that they would continue monitoring "Economic And Financial Developments" in order to judge how to reach their 2 percent inflation target "over the medium", suggesting they may not be rushing to slash rates again in March if data between now and then signals that inflation pressures are actually holding up. |
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Oil Price Remains Under Pressure |
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Expiring today, WTI crude oil for February dropped to as low as 33.89 before recovering slightly to settle at 34.4 yesterday, making a loss of 4%. Today, the contract hovers around 34 level with little trading volume.
The March contract, though still trading at a premium to February one, also plunged 3.4% yesterday to close at 40.9. Investors worry that the bailout plans for banks in the UK will make recession deepen and hurt demand.
Moreover, as the tension in the Middle East reduced and Russia-Ukraine dispute resolved, oil price may have risk to fall to previous low or even $30/bbl. However, we believe further downside is limited as price below 30 should trigger buying and force oil producers to greatly reduce capex.
In Gaza, Israeli troops continue pulling out of the region as Hamas has stopped rocket attack. In the 3-week conflict, more than 1300 Palestinians were killed and at least 4000 homes were destroyed, according to officials in Palestine. As the conflict has temporarily ceased and is has not spread to nearby countries, oil supply should not be affected. fter 2 weeks' suspension in natural gas supply, Russia and Ukraine signed a 10-year contract and agreed to resume gas delivery. According to the contract, Ukraine will enjoy 20% discount on prices for Russian gas this year but there will be a raise from 2010 onwards. In return, Russia will pay the same transit fee in 2009 for shipment of gas via Ukraine. 
In recent months, contango in WTI futures and widening spreads between Brent and WTI (with Brent trading at premium) have been traders' focus. Longer futures trading at higher price than spot oil provides traders incentives to store crude now and sell it later, thus increasing near-term oil inventory. Cushing inventories reaching full storage as well as recent Russia-Ukraine dispute caused Brent crude oil to trade higher than WTI, letting out transportation cost.
Gold price dropped Monday on crude oil's weakness and the dollar's rebound. The dollar index recovered to 85.14 yesterday and the strength remains today. Although global economic downturn and reduced inflationary pressure may drag down price of the precious metal in the first half of the year, as deleveraging is completed and the dollar weakens, gold price will sustain a rally in later part of the year. |
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EUR/USD Report 20-01-2009 |
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New short term reaction low in channel off 1.4719, after tested daily channel top from there (1.3299 today).
Support area at 1.2975 (today’s low?), with next levels at 1.2925/ .2912 (2nd target off 1.3822/ weekly envelope bottom): tough on 1st attempts.
If wrong, next levels at 1.2894/ .2881 (76.4% 1.2331 to 1.4719/ daily Bollinger bottom), where pause favored, amid oversold readings.
Resistance at 1.3139/ .3144 (breakdown hourly/ daily Short Term Moving Average↓), ahead of 1.3164 (reaction high hourly) and 1.3234 (daily envelope top): tough on 1st attempts.
If wrong, next levels at 1.3299 (see above), ahead of 1.3385/. .3389 (current week high/ daily Medium Term Moving Average↓), where pause favored.
- USD/JPY: (90.24) Approached 91.44
- EUR/GBP: (.9100) Above Flag top off high
- EUR/JPY: (117.45) Reapproaching 116.24
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- USD: Higher as focus shifts to EU bank troubles, and equities turn lower
- JPY: Mixed supported by gains in cross to Europe, industrial production revised down
- EUR: Lower pressured by cut in Spain's debt rating, lower EU growth forecast, Ireland may exit EMU
- GBP: Lower supported by report of record loss at RBS, bank bailout may not be enough
- CAD and AUD: AUD mixed /CAD lower pressured by large net foreign outflows
USD traded higher with EUR pressured by report that EU growth outlook was cut, by reports of growing tensions within the EU and the possibility that Ireland may want to exit the Euro. Spain's debt rating was cut, adding selling pressure to EUR. GBP pared early gains initially on news that the UK announced a second bank rescue plan. GBP was pressured by report record loss at RBS.
EU bank troubles and economic concerns overshadowed the impact of rising global equities and slight uptick in risk appetite. JPY traded mixed initially pressured by an early spike in risk appetite as global equity markets rise in reaction to the UK bank bailout news and optimism that new US president Obama will propose fresh economic stimulus and financial aid to combat the global economic downturn. Japan's economic news continues to be negative with Japan reporting a downward revision in November industrial production. JPY was supported by gains in cross trade to Europe. AUD and CAD were the early beneficiaries of the spike in risk appetite. CAD turned lower pressured by report of a sharp drop in Canada’s November foreign investment. AUD turned lower as equities turn lower. Focus turns to the Obama inauguration UK inflation and BOC policy meeting Tuesday. The trade will look closely at Obama's inauguration speech Tuesday for possible details of what Obama plans to do to boost the US economy. There are reports that the Obama may announce a plan for US government to buy toxic banks assets.UK inflation is expected to post a sharp drop. The trade will also look to the BOC policy meeting Tuesday. The BOC is expected to cut rates 50 basis points to 1%.
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USD/CHF Overview 20-01-2009 |
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In the news: Today’s U.S markets were closed in observance of the U.S holiday; Martin Luther King, Jr. Most of the focus is on tomorrow's presidential inauguration, where president elect Barack Obama will be sworn into presidency. Overnight we did see that Asian and European markets ended the day marginally flat. For the next couple of days all eyes will be on President Barack Obama and how he will handle his first 100 days in office. In Focus Today: USD/CHF: In the new week of trading the USD/CHF started the week on a continuing uptrend. We noticed last week the trend for the USD/CHF was bullish and that has not changed in the first day of trading this week. Although the rising support trend line did break on the downside, the 61.8% Fibonacci retracement level was able to provide good support as we expected it to. Resistance comes in at 1.1417 from the highs of September 11, 2008. Last night the Swiss reported retail sales which came in at -1.4% from a forecast of 1.5%, thus driving the Swiss lower. The pair should remain in a subtle bullish trend for now and with no U.S data tomorrow, we will keep and eye on the Gbp/Chf and Eur/Chf crosses for some intraday direction. |
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