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Briefing highlights

  • Shorting of loonie near record
  • Speculators bet on the euro
  • Toronto housing market feels chill
  • Markets at a glance
  • What to watch for in financial review
  • What to expect in jobs report
  • What else to watch for this week

The short and long of it

Speculators are cheering on the euro as they continue to bet heavily against the loonie.

True, short covering is behind the spike in the net long position for the euro, as reported by the U.S. Commodity Futures Trading Commission.

But that position is still the highest in years, while shorting of the Canadian dollar is near record levels.

The net short position against the loonie dipped marginally to just shy of $7.3-billion (U.S.), according to the latest CFTC numbers, reported late Friday and measured as of last Tuesday.

In terms of contracts, the number inched down to 98,000 from a record 99,000, still elevated even in the face of forecasts suggesting that the currency, now at about 74 cents, is poised to gain.

“Details highlight a continued reduction in risk to both sides,” said Bank of Nova Scotia foreign exchange strategists Shaun Osborne and Eric Theoret, noting that, on the long side, contracts have dropped for four weeks in a row while shorts covered over the past couple of weeks.

“The adjustments hint to near-term uncertainty with regards to the path for CAD,” they added in a report on the CFTC numbers, referring to the Canadian dollar by its symbol.

The euro’s net long position, on the other hand, climbed by 8,000 to 73,000 to mark the highest since mid-2011.

In dollar terms, the net long rose by more than $1-billion to $10.2-billion.

“Short covering remains the dominant driver (six consecutive weeks) in delivering an improvement in the net,” said Mr. Osborne and Mr. Theoret.

The euro’s comeback could get a boost Thursday, when the European Central Bank meets and possibly upgrades its view of the economy. It may also point to the winding down of stimulus program.

The ECB meeting “represents an important landmark in the euro’s rehabilitation as it is widely expected that the ECB will drop its easing bias and so signal the slow end of unconventional easing that has proved so toxic for the currency” said Paul Meggyesi of JPMorgan Chase.

“While a change in bias is fully priced and won’t necessarily spark major gains in the euro, it should nevertheless serve to validate the shifting policy narrative around the euro and so prevent any major backsliding in the currency.”

At the same time, analysts also believe the Canadian dollar has just about found its bottom, and could pick up amid a stronger economy and more stability in the oil market, among other things.

“The baseline for thinking about relative value trades is to buy currencies that are both cheap and have momentum versus ones that are rich and are retreating,” said Mark McCormick, North American chief of foreign exchange strategy at TD Securities.

“We note the USD profile probably helps to explain some of the recent weakness,” he added.

“It is also the most expensive. Notably, CAD and [the yen] both fare well on our measures of growth and value. Indeed, CAD scores well on both measures, increasing our confidence in our call for a push back to 1.32.”

Looked at the other way, he means a loonie at almost 76 cents.

Toronto housing cools

Toronto’s overheated housing market has cooled rapidly since the Ontario government announced a suite of new measures in April, with average prices dropping 6 per cent in May while the number of homes sold fell by 12 per cent during the month.

The average sale price for all home types in the Greater Toronto Area was $863,910 in May, a drop of 6.2 per cent from $920,791 in April, according to sales data from the Toronto Real Estate Board. The price was still up 15 per cent compared to May, 2016, however, because of large price gains earlier this year, The Globe and Mail’s Janet McFarland reports.

The month-over-month price decline came as 19.4 per cent more homes were listed for sale in May, with new listings rising to 25,837 from 21,630 in April. New listings were up 49 per cent from 17,356 in May last year.

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Markets at a glance

What to watch for this week

One thing’s for certain: There will be a lot to chew on.

In Canada, expect to hear a lot about housing and jobs.

The Bank of Canada releases its semi-annual financial system review on Thursday. That’s the report that always gives Governor Stephen Poloz and his colleagues the opportunity to wring their hands over record consumer debt levels and inflated home prices.

This one, of course, follows the Ontario government’s new measures to tame Toronto area housing markets. It also follow’ the latest Toronto home sales and price report, today, and the similar report in Vancouver, released Friday, that suggested that market was picking up again.

“The housing market will likely be the key theme,” Benjamin Reitzes, Canadian rates and macro strategist at BMO Nesbitt Burns, said of the central bank report.

“The past six months have seen housing activity and prices in the Greater Golden Horseshoe rocket higher, only to see the Ontario government step in with cooling measures (which seem to have had an initial impact), trouble at the largest alternative mortgage lender, a downgrade of Canadian banks on housing worries, and warnings from the IMF and a cacophony of others on the risks surrounding housing and household debt.”

Friday brings Statistics Canada’s monthly jobs report. And there’s really little point in guessing what it will show because, as even economists note, it’s rarely more than just that, a guessing game.

But, for the record, economists generally expect to see that 11,000 jobs or more were created last month, with unemployment inching up to 6.6 per cent.

“We’re looking for a decent 15,000 increase, consistent with our view on the broader economy,” Mr. Reitzes said.

“Note that the headline [job creation number] has come in above expectations for the past six years of May prints, so there could be some upside risk.”

Like I said.

The calendar:

Wednesday

DavidsTea Inc. and Dollarama Inc. report quarterly results.

Thursday

A big day, this, particularly in Europe.

While the Bank of Canada releases the financial system review and the ECB its policy decision, as noted, we’ll also see the latest European economic growth figures.

Then there’s the British election, which plays into all things Brexit.

“Another nail-biter election to deal with in the coming week,” said BMO senior economist Jennifer Lee.

“It wasn’t that long ago that the June 8 U.K. general election was considered a slam–dunk for PM Theresa May, which is likely why she called this snap election in the first place, two years ahead of schedule ... But the winds have shifted.”

All eyes will also be on Washington, where former FBI chief James Comey testifies to the Senate Intelligence Committee.

Obviously there won’t be a huge market impact here, but it sure will be fun to watch.

Also Thursday, investors get the latest quarterly results from Hudson’s Bay Co. and Transcontinental Inc.

Friday

Besides the Canadian jobs report, Germany reports monthly trade figures.

Which should get Donald Trump’s blood boiling.

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