Case Study: Canadian Dollar and Oil Price Decoupling

The correlation between the Canadian dollar and the price of oil became weaker and weaker since July after the oil price, along with other commodities, started to fall in response to increasingly slowdown in global economic activity.

Today's behaviors of oil and the loonie, as depicted in the following charts, can show that decoupling.

Euro-Zone GDP, U.S. Retail Sales, and ECB 10th Anniversary

The euro-zone officially fell in its first recession after today's reports showed that the economy contracted 0.2 percent in the third quarter, following a 0.2 percent decline in the previous quarter.

The GDP numbers turned negative in Italy and Spain, and Germany. France escaped the official recession by an anemic 0.1 percent growth which the finance minister called it a surprise. Some analysts believe that the service sector in France is also subject to downturn and getting negative GDP numbers is just a matter of time.

Today was also the 10th anniversary of European Central Bank and there was a meeting in Frankfurt with Bernanke and Trichet and also central bankers from Israel, Mexico, and deputy governor of China's People Bank of China. Ahead of the Washington states summit which officially starts tomorrow, policy makers expressed their support to help financial institutions to overcome the credit crisis.

Reactions to the economic data were somewhat limited even to the record decline in the U.S. Advanced Retail Sales which fell 2.8 percent in October. Markets welcomed the central bankers' signals for continuing easing monetary policies with optimism to have at least some fiscal policy announcements from the Washington summit.

I made about 3 percent profit from selling eurjpy.

German GDP; Reaction to Supply and Demand Forces

Third quarter GDP for Germany fell 0.5 percent, worse than analysts estimates following a 0.4 percent decline in the second quarter. The economy entered in a recession after two consecutive quarters decline. Euro was under pressure but as always the supply and demand forces dictated the results:

Euro supply side:
- possibility of more rate cuts after weak GDP number
Euro demand side:
- equity indexes such as DAX rebounded later betting that more rate cuts are now in horizon and it could stimulate the economy.

Yen supply side:
- possibility of intervention by the Bank of Japan rose after earlier actions by the Australian counterparts that bought the Aussie to support the currency.
- rebound in equity markets after heavy losses in recent days
Yen demand side: -

As the charts show, selling eurusd might be a better option than eurjpy considering the downside risks to the Japanese yen. My position (sell eurjpy) resulted in 2.5 percent loss which was closed after the price broke its MA26, signaling a reversal may be likely.

BOE Quarterly Inflation Report: Making 10 percent Profit

The bet on falling sterling resulted in profit. I closed the positions, short on gbpjpy and gbpusd, near the support and before the actual report itself.

BOE Quarterly Inflation Report: Four Hours Left

The BOE is to release its quarterly report on the future of growth and inflation in less than four hours. Yen is weaker now. China's retail sales grew close to its fastest pace from a year earlier, a report today showed. If selling gbpjpy is an option there is more risk now.