Canadian Dollar drops sharply in early US session after big disappointment from retail sales data. The Loonie is currently trading as the weakest one for today. Euro is following as the second weakest as markets increases bet on ECB rate cut. Money markets are pricing in around 60% of a -10bps ECB cut next week. On the other hand, Dollar is the strongest one for today, but it’s mainly paring some of yesterday’s sharp fall. Expectation of Fed cut would cap Dollar’s rebound.

Technically, EUR/USD is a major focus in US session. It’s staying in range of 1.1193/1285 but could have a breakout before weekly close. Similarly, USD/CAD could also breakout from range of 1.3016/3143. EUR/GBP will be another focus and break of 0.8954 minor support will be an early sign of near term bearish reversal.

In Europe, currently, FTSE is up 0.02%. DAX is up 0.09%. CAC is up 0.14%. German 10-year yield is down -0.0115 at -0.318. Earlier in Asia, Nikkei rose 2.00%. Hong Kong HSI rose 1.07%. China Shanghai SSE rose 0.79%. Singapore Strait Times rose 0.50%. Japan 10-year JGB yield dropped -0.0012 to -0.136.

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Canada retail sales dropped -0.1%, ex-auto sales dropped -0.3%

Canada retail sales dropped -0.1% mom in May, much worse than expectation of 0.3% mom. Ex-auto sales dropped -0.3% mom, also much worse than expectation of 0.4% mom. Sales were down in 4 of 11 subsectors, representing 39% of retail trade. Sales also dropped in eight provinces.

Released in European session, UK public sector net borrowing rose to GBP 6.5B in June versus expectation of GBP 3.4B. Eurozone current account surplus widened to EUR 29.7B versus expectation of EUR 21.2B. German PPI slowed to 1.2% yoy in June versus expectation of 1.5% yoy.

Chance of no-deal Brexit jumped to highest since Oct 2017

According to a Reuters July 15-18 poll, the median forecasts of no-deal Brexit happening was 30%, up from 25% in June and 15% in May. That’s also the highest number since October 2017. Analysts perceive that Boris Johnson is likely to win the Conservative leadership race and get the job of UK Prime Minister. And his rhetoric during the campaign suggests that no-deal Brexit is more than than before.

According to the same poll, the chance of recession was 30% in the coming year and 35% over the new two years, up from June’s 25% and 30%. Also, expectation of BoE rate hike also receded and bank rate is forecast to stay at 0.75% until 2021 at the earliest. Only 27 to 76 economists expected a hike before the end of 2020, down from 36 of 69. 9 of 76 are expecting a cut be end-2020, up from 5 of 69 in June.

Jeremy Hunt and Boris Johnson are the two remaining candidates in the leadership race. Winners will be selected by a postal ballot of around 160k Conservative members. Voting will close on July 22 and new leader would be announced on July 23.

Japan CPI core slowed to 0.6%, lowest since July 2017

Japan CPI core (ex-fresh food) slowed to 0.6% yoy in June, down from 0.8% yoy and matched expectations. All items CPI was unchanged at 0.7% yoy, while CPI core-core (ex-fresh food and energy) was also unchanged at 0.5% yoy.

CPI core was the lowest reading since July 2017. No turnaround is expected in the near term. Instead, CPI core could be further dragged down by policy related factors, including mobile phone charges and education costs.

The dim inflation outlook highlights the pressure for BoJ to ramp up monetary stimulus. In particular, both Fed and ECB are expected to loosen up policy again later this week.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.3003; (P) 1.3050; (R1) 1.3073; More….

USD/CAD rebounds notably today but stays below 1.3143 resistance. Intraday bias remains neutral for the moment. With 1.3143 intact, further decline is mildly in favor. Sustained trading below 1.3052/68 cluster support should confirm medium term reversal. Deeper decline should then be seen to 1.2781 support next. Nevertheless, break of 1.3143 resistance will confirm short term bottoming and bring stronger rebound.

In the bigger picture, the case of bearish reversal continues to build up. Decisive break of 1.3068 cluster support (38.2% retracement of 1.2061 to 1.3664 at 1.3052) will confirm completion of up trend from 1.2061 (2017 low). Further fall should be seen to 61.8% retracement at 1.2673 next. On the upside, sustained break of 61.8% retracement of 1.4689 (2016 high) to 1.2061 at 1.3685, is needed to confirm resumption of up trend from 1.2061 (2017 low). Otherwise, risk will stay on the downside.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:30 JPY National CPI Core Y/Y Jun 0.60% 0.60% 0.80%
04:30 JPY All Industry Activity Index M/M May 0.30% 0.30% 0.90% 0.80%
06:00 EUR German PPI M/M Jun -0.405 -0.10% -0.10%
06:00 EUR German PPI Y/Y Jun 1.20% 1.50% 1.90%
08:00 EUR Eurozone Current Account (EUR) May 29.7B 21.2B 20.9B 22.4B
08:30 GBP Public Sector Net Borrowing (GBP) Jun 6.5B 3.4B 4.5B 3.8B
12:30 CAD Retail Sales M/M May -0.10% 0.30% 0.10% 0.20%
12:30 CAD Retail Sales Ex Auto M/M May -0.30% 0.40% 0.10% 0.00%
14:00 USD U. of Mich. Sentiment Jul P 98.6 98.2

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