Mark Twain once said “A lie can travel halfway around the world while the truth is putting on its shoes”. More than a century later, this remains accurate, and nowhere more so than the financial markets. Conflicting reports are flooding in from the putative battlefields in Ukraine, forcing participants to seek protection against risk -despite having little in the way of solid facts to take positions on.
Front month crude prices are trading near a six-week high, and Muscovite shares are in freefall as investors bet that the United States will continue to ratchet up the pressure on Putin. With sanctions becoming increasingly likely, trade flows are slowing and capital is flooding out through any means possible.
The euro is flirting with a two-week low, under sustained pressure from traders who believe that the European Central Bank is preparing a monetary stimulus programme that will act to dilute the common currency. Participants are taking a cautious stance ahead of tomorrow’s flash purchasing manager indices and the German business sentiment reading on the following day, both of which are expected to illustrate the strain that the strong euro is exerting on the broader economy.
ECB President Draghi is due to deliver a keynote speech in Amsterdam on Thursday, where he may fire another warning shot at euro bulls – thus ensuring that risks remain asymmetrically balanced against further upside.
Asian currencies are almost universally on the defensive, with the yuan, yen and won all trading down in overnight trading. The yuan is still falling, marking a 14-month low against the greenback as the central bank continues to set the midpoint lower. Korean won traders appear to be pausing for breath, taking gains off the table after the currency’s rally last week. No one has a yen for the yen after yesterday’s trade numbers, but losses appear to be contained near the midpoint between 100 and 105 against the dollar.
Last, but not least, the Canadian dollar is dancing around the 1.10 mark, in the absence of any catalyst to establish a directional trend. As we’ve suggested previously, this level has become the new par, acting as a reference point for numerically-challenged foreign exchange traders who tend to focus on the left-most digits in a pair.
With the Bank of Canada maintaining its dovish stance and exporters beginning to sell more goods into the United States, it appears that the currency will remain rangebound for some time. Appearances aren’t everything though – if housing construction slows (as we expect), the loonie could come under sustained pressure once more…
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