It appears that the famously cheerful Germans aren’t feeling quite so optimistic lately.The euro is holding near an eight-month low and global markets are limping into the weekend after the Ifo German business confidence survey fell for a third month running. The closely watched benchmark fell to 108, crushing market expectations around the 109.50 mark – and illustrating the toll that the conflict in Ukraine is taking on the European Union’s growth engine.
The dollar continues to gain altitude, leaping upward after demand for durable goods in the U.S. increased more than forecast in June, supporting the almost universal belief that the world’s largest economy is beginning to accelerate forward.
Orders jumped by 0.7% in June for goods that are meant to last for more than three years, beating consensus estimates closer to 0.5%. Non-military, non-aircraft orders surged 1.4%, putting more weight behind a dollar rally that seems almost unstoppable at this juncture. The yield landscape has tilted heavily toward the greenback over the past two weeks, particularly on the heels of Janet Yellen’s suggestion that rates could rise sooner than markets expect “if the labor market continues to improve more quickly than anticipated”.
Crude oil prices are steady, with West Texas Intermediate tea trading on the $102 handle while Brent remains rangebound around the $107 mark. Geopolitical concerns continue to keep the complex supported, but well-supplied markets seem to be following the old dictum – “keep calm, and carry on”.
The Canadian dollar is sitting smack in the middle of its recent trading range, coming under upward pressure as the country’s largest export market improves, but pulled downward by ongoing concerns over the state of the domestic economy. As we’ve suggested repeatedly over the past six months, the country’s debt-fuelled consumption binge has distorted economic incentives, meaning that the loonie remains extremely vulnerable to a downward correction in the coming months.
Update: Canadian dollar crashing down – USD/CAD > 1.08
A busy week beckons, with a series of critical data releases and announcements in the docket from Wednesday through Friday. With the Federal Reserve making an announcement, GDP reports dropping in the United States and Canada, Chinese manufacturing numbers, and the non-farm payrolls report looming, the ingredients for market instability are all in place. Implied volatility levels are already on the rise, and could rise further in the coming days. Forewarned is forearmed.
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