Mid-Day Report

Canadian Dollar Lower after a Batch of Disappointing Data, Sterling Rebounds on Positive Brexit News

Typography

Canadian Dollar weakens notably in early US session after a batch of disappointing data. Headline CPI rose 0.2% mom, 1.6% yoy in September, up from August's 0.1% mom 1.4% yoy. But that's below expectation of 0.4% mom, 1.7% yoy. CPI core-common was unchanged at 1.5% yoy. CPI core - trim edged higher to 1.5% yoy. CPI core median also edged higher to 1.8% yoy. Meanwhile, headline retail sales dropped -0.3% mom in August, way below expectation of 0.4% growth. Ex-auto sales was even worse and dropped -0.7% mom, versus consensus of 0.3% mom. BoC will be meeting next week and there is practically no change for a rate hike from current 1.00%. USD/CAD is staying in range of 1.2432/2598 at the time of writing. Near term outlook remains bearish as rebound from 1.2061 should resume through 1.2598 sooner or later.

Sterling rebound on Brexit progress

Sterling rebounds strongly today on positive news out of Prime Minister Theresa May's appearance in the EU summit. May pledged to examine the Brexit bill line by line and UK could be willing to pay more than EUR 20B. And she doesn't dismiss the number of EUR 60b, which is believed to be what EU is asking for. Meanwhile, European Council President Donald Tusk said that the reports of the "deadlock" between EU and UK "have been exaggerated'. Tusk added that while progress was "not sufficient" to start trade talks, that "doesn't mean there is no progress at all".

Released from UK, public sector net borrowing rose to GBP 5.3B in September.

Euro firm as markets eyes next week's ECB

Euro has been very resilient this week in spite of the political uncertainties in Catalonia. The common currency could end as the second strongest major currency, after dollar. Markets are keenly awaiting next week's ECB monetary policy decision. ECB Governing Council Member Ewald Nowotny said today that the central bank will likely decide to cut down on its monthly asset purchase target next week. He noted that "the question will be whether the programme should be continued at the current intensity or whether hitting the brakes is called for". Though, he noted that "it would be dangerous to abruptly slam on the brake", but ECB "will slowly take its foot of the gas". It's speculated that ECB would cut the EUR 60B a month purchase by half to EUR 30B, or ever by two-thirds to EUR 20B.

Released from Eurozone, current account surplus widened to EUR 33.3B in August. Germany PPI rose 0.3% mom 3.1% yoy in September, above expectation of 0.1% mom 2.9% yoy.

Dollar to end as the strongest one on tax hope

Dollar is set to ended the week as the strongest one, after a wild ride. The greenback was boosted by news that US President Donald Trump and Republicans have moved a big step forward on tax reforms. Republican-dominated Senate narrowly approved a budget blueprint for the next fiscal year, yesterday. Republicans could now pass legislation reform the tax plan without the need for help from Democrats. And more importantly, the voting some how showed unity among Republicans. Even Senator Bob Corker, who's in feud with President Donald Trump, voted the for the budget. Technically, dollar is mildly bullish against Swiss Franc and Yen. But it's sort of neutral against Euro and Sterling.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.2458; (P) 1.2476; (R1) 1.2502; More....

USD/CAD rebound strongly in early US session. But it's still bounded in range below 1.2598. Intraday bias remains neutral first. On the upside, break of 1.2598 will extend the rebound from 1.2061 to 1.2777 resistance next. In case of another fall, downside should be contained by 38.2% retracement of 1.2061 to 1.2598 at 1.2393 to bring rally resumption.

In the bigger picture, USD/CAD should have defended 50% retracement of 0.9406 (2011 low) to 1.4869 (2016 high) at 1.2048. And with 1.2048 intact, we'd favor the case that fall from 1.4689 is a correction. Break of 1.2777 will further affirm this bullish case. That is, larger up trend from 0.9406 is not completed. And in that case, USD/CAD should target 1.3793 resistance next. However, on the other hand, firm break of 1.2048 will indicate that fall from 1.4689 is at least a medium term down trend and should target 61.8% retracement at 1.1424 and below.

USD/CAD 4 Hours Chart

USD/CAD Daily Chart

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
06:00 EUR German PPI M/M Sep 0.30% 0.10% 0.20%
06:00 EUR German PPI Y/Y Sep 3.10% 2.90% 2.60%
08:00 EUR Eurozone Current Account (EUR) Aug 33.3B 26.2B 25.1B 31.5B
08:30 GBP Public Sector Net Borrowing (GBP) Sep 5.3B 5.7B 5.1B
12:30 CAD CPI M/M Sep 0.20% 0.40% 0.10%
12:30 CAD CPI Y/Y Sep 1.60% 1.70% 1.40%
12:30 CAD CPI Core - Common Y/Y Sep 1.50% 1.50%
12:30 CAD CPI Core - Trim Y/Y Sep 1.50% 1.40%
12:30 CAD CPI Core - Median Y/Y Sep 1.80% 1.70%
12:30 CAD Retail Sales M/M Aug -0.30% 0.40% 0.40%
12:30 CAD Retail Sales Less Autos M/M Aug -0.70% 0.30% 0.20%
14:00 USD Existing Home Sales Sep 5.32M 5.35M