GFX Morning FX Commentary, September 12th, 2012

Good Morning,

Today’s expected range for the Canadian Dollar against the US Dollar is .9700-.9800

Today’s expected range for the Canadian Dollar against the Euro is 1.2550-1.2650

Today’s expected range for the Canadian Dollar against Sterling is 1.5650-1.5750

The US Dollar is much weaker to start the day as the Euro continues it amazing run. This morning the German high court ruled that the German Government could in fact contribute funds to the EU rescue fund with the only caveat being that they must first get parliamentary approval. With Merkel presently have a majority in parliament this is not much of an issue but may become one next year when she has to have an election.  Euro is now trading close to 1.2900 against the Greenback and does look set to move towards 1.3000 in the short-term.

The markets will now focus on the US Federal Reserve’s interest rate announcement and to see if they will add stimulus to the economy, Bloomberg is reporting that fully 2/3’s of economists they polled expect the FED to announce some form of Quantative Easing, “QE3” as it is referred to. I myself do not think they will do anything and the markets will be a bit disappointed, the US economy is still growing, inflation is in check and jobs are being created. It is not the responsibility of the Federal Reserve to create jobs but to create price stability and to create the environment for the Government to have fiscal policy in place that will create jobs. I think the Fed will announce that they will continue their TWIST program (they sell short-term bonds to buy long-term bonds to keep interest rates low)and will announce that they will extend their low interest environment until 2015. If I am correct the equity markets will drop off and the US dollar should jump.

While most currencies reacted to the stronger Euro and weaker US Dollar last night, USD.CAD was on the sidelines and did not have a big move, I think it is down to the fact that the Loonie has become so strong so quickly that traders are beginning to get nervous that it may be too strong, it is beginning to look like the Loonie will pause for a while before it moves again. If my scenario is correct for tomorrow’s Fed announcement US Dollar buyers should be looking at locking in part of their exposures so that they don’t miss out, if I am wrong and the Fed announces QE3 then US Dollar buyers will benefit. Given the uncertainty surrounding the decision US Dollar sellers may also want to consider leaving some orders at these levels, I know .9700 is a crappy area to be selling US dollars but it is still better than .9500 which is where we will head if equities jump a lot higher on the Fed announcement.

For today with the lack of economic releases and the German court ruling out of the way, USD.CAD will continue to trade in narrow ranges, I would not except the Loonie to strengthen all that much as it sets up for tomorrow announcement.

 

Have a great day
Mike

GFX Morning Currency Rates
Wednesday September 12, 2012
Currencies	7:00am Today's Opening				Yesterday's Opening
USD/CAD		0.9735			0.9738
CAD/USD		1.0272			1.027
EUR/USD		1.292			1.279
EUR/CAD		1.2578			1.2455
STG/CAD		1.5683			1.56
AUD/CAD		1.0214			1.0104
CAD/JPY		79.89			80.08
CAD/CHF		0.9605			0.9681
CAD/HKD		7.9444			7.9409
CAD/CNY		6.4969			6.5041
CAD/MXN		13.3129			13.3944
Commodities
Gold		$1,747			$1,735
OIL		$97.75			$96.56
Option Volatility
Canada
O/N		7.43%			7.00%
1 Week		7.56%			6.90%
1 Month		6.67%			6.50%