Mid-Day Report: CAD Jumps after BoC Hike, European Debt Worries Ease

Bank of Canada raised overnight rate target by 25bps to 1% as widely expected. One important point to note is that BoC still describe current monetary policy as "exceptionally stimulative" which suggests that the bank's tightening cycle might not be over yet. Though, further rate hike "will be carefully considered in light of the unusual uncertainty surrounding the outlook". In particular, BoC now "expects the economic recovery in Canada to be slightly more gradual than it had projected in its July Monetary Policy Report" reflecting the weaker profile of US.

Concern on European debt problems eases a bit today. Portugal's Public Debt Management Agency sold a combined EUR 1.04b of three-year (EUR 661m) and 11-year bonds (EUR 378m) today. Demands was solid with bid-to-cover ratio of the 2021 bonds at 2.6 comparing to that of 1.6 in March. Bid-to-cover ratio of the 2013 bond was at 1.9 even though it's lower than that of 2.4 in June. However, the average yield 4.086% on three-year bond and 5.973% on 10 year bond were significantly higher than prior auction of 3.597% and 4.17% respectively.

Sterling staged a strong rebound today after Halifax house price showed unexpected rise of 0.2% mom in August, which was the second consecutive gain. Industrial production rose 0.3% mom, 1.9% yoy in July, missed expectation while manufacturing production rose 0.3% mom, 4.9% yoy. GBP/USD's gain is so far capped at 1.55 level.

Yen is off intraday high as Japan stepped up its rhetoric on yen intervention again. Finance Minister Noda mentioned explicitly that Japan will take "decisive steps, which, of course, include intervention" when it's necessary. BoJ Governor Shirakawa, on the other hand, hinted that there will be additional measures to boost recovery if "downside risks materialize and the economy worsens at a faster pace than we expect."

CAD/JPY continues to consolidate above 78.41 after the crosse draw support from 78.52 support level. Today's strong recovery suggests that such consolidation is still in progress. But after all, we'd continue to expect upside to be limited by 84.48 resistance and bring another fall. Sustained trading below 78.52 will pave the way for a retest on 2009 low of 68.38.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2614; (P) 1.2745 (R1) 1.2813; More.

EUR/USD recovers mildly after dipping to 1.2658 but still, with 1.2772 minor resistance intact, intraday bias remains on the downside for 1.2587 support. Break will confirm that whole decline from 1.3330 has resumed and should target 61.8% retracement of 1.1875 to 1.3330 at 1.2431 next. On the upside, above 1.2772 minor resistance will turn intraday bias neutral first. But with 1.2921 resistance intact, fall from 1.3330 is still expected to continue. However, decisive break of 1.2921 will indicate that fall from 1.3330 is possibly completed and will bring stronger rally to retest this high instead.

In the bigger picture, note that EUR/USD is still limited below 55 weeks EMA (now at 1.3346) and thus, there is no indication of medium term bottoming. Whole decline from 1.6039 is possibly still in progress. Such decline is treated as correction to long term up trend and will target 1.1639 support after taking out 1.1875 low. On the upside, though, above 1.3330 will turn focus back to 55 weeks EMA and sustained trading above there will pave the wave to further rise to upper trend line resistance (1.6039, 1.5143, now at 1.4600).

Economic Indicators Update

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