November 22, 2009

Canada Afternoon: C$ Ends Lower Amid Subdued Risk Sentiment -

Canada Afternoon: C$ Ends Lower Amid Subdued Risk Sentiment - "'The weaker currencies in the G-10 bloc this week with risk aversion climbing a bit have been the commodity currencies like Australia, New Zealand, and Canada,' said currency strategist Shane Enright of CIBC World Markets in Toronto. 'If the market presses on with theme we've had in the last two days of U.S. dollar strength, my guess is it will stop stalling around those mid-C$1.0700 levels.'
Chief foreign exchange technical analyst George Davis of RBC Capital Markets in Toronto suggested that mounting concerns about an increasingly illiquid year-end trading environment are also contributing to a reluctance to take positions in less widely traded currencies like the Canadian dollar.
Davis said that the U.S. dollar's penetration and close beyond key technical resistance in the C$1.0685 area could in coming days promote a move by the U.S. dollar-Canada pair into the mid- to high-C$1.0800s, which would mark the Canadian dollar's weakest levels since early October.
Currency trading will likely become increasingly illiquid and subject to exaggerated volatility next week, given Thursday's U.S. market close for Thanksgiving, and also holidays in Japan and other Asian countries throughout the week."
"Liquidity is the drug

There was little out in terms of data overnight and it appears that the FX market continues its positioning-cutting/profit-taking heading into month-end. There were some important comments, however, from various ECB policy makers (Trichet, Weber and Bini-Smaghi) overnight.The most interesting of these were from ECB President Trichet, who spoke of the role central banks have played in containing contagion in the global financial market, comparing the crisis management and enhanced credit support to 'emergency medicine.' However, he went on to say that 'if their use is prolonged, they can lead to dependence and even addiction. Eventually, the administration of painkillers must be stopped if patients are to get back on their own two feet.' He also hinted that once the decision to withdraw liquidity is made, various non-standard measures will be unwound in a gradual manner to prevent what he called 'withdrawl symptoms'. He observed that “it is too early to declare the crisis over”, especially since the private sector must understand that enhanced credit support would not last forever. The recent profit-taking notwithstanding, our view has been that risky assets can rally further as policy makers appear unlikely to change their ultra-loose policy stance and unlimited liquidity in the near term. It is clear from Trichet's comments that the ECB isn't quite there yet in curtailing its liquidity measures"

Dollar Revels in Continued Risk-Aversion -

Dollar Revels in Continued Risk-Aversion - "Plentiful access to liquidity has been seen as one of the reasons riskier assets have rallied. Any suggestion such programs will end is generally viewed as a negative for growth-sensitive stocks and commodities as well as higher-yielding currencies such as the euro.
Until central banks offer clues as to when interest rates might change, bit-by-bit releases of global economic data are likely to drive currency markets, analysts said.
'Economic data will still be key going forward, but we will need to see some very nice numbers to push through $1.50 in the next couple of weeks,' Jane Foley, a research director at in London, said of the euro direction."

Dollar Revels in Continued Risk-Aversion -

Dollar Revels in Continued Risk-Aversion - "Later in the European session, the ECB announced its first active step to unwind the measures it has used to support the financial sector since the global crisis last year. The bank said it will tighten the standards according to which it accepts certain asset-backed securities as collateral for its refinancing tenders."

Dollar Revels in Continued Risk-Aversion -

Dollar Revels in Continued Risk-Aversion - "The Dollar Index, which tracks the greenback against a trade-weighted basket of six currencies, was at 75.647 from 75.264."

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