Tue, Oct 26, 2021 @ 06:31 GMT

CAD surges on BoC Business Outlook Survey, CADJPY resuming rebound

    Canadian Dollar surges as BoC’s Business Outlook Survey painted a positive picture. In particular, business sentiments were supported by “healthy” sales prospects. Capacity and labor pressures are “evident” in most regions due to strong demand.

    Here are highlights of the survey:

    • Forward-looking sales indicators remain positive across most regions and sectors. Some firms expect a moderation in sales activity from high levels in the past year or a gradual slowing of the pace of the recovery in the energy sector.
    • While firms’ expectations for US economic growth have strengthened further, some cited rising protectionism and reduced competitiveness as factors limiting the impact on their sales.
    • Although less so than in recent surveys, intentions to increase investment continue to be widespread. Employment intentions are solidly positive, based on firms’ plans for hiring to support expected sales growth or to expand operations.
    • Indicators of capacity pressures and labour shortages edged down but are still close to recent high levels. Remaining economic slack appears to be mostly concentrated in the energy-producing regions.
    • Despite expectations for faster input price growth overall, on balance, firms continue to anticipate only modest acceleration in the growth of their output prices due to competitive pressures. Partly driven by rising labour costs, inflation expectations picked up but are still well within the Bank’s inflation-control range of 1 to 3 per cent.
    • While credit conditions were unchanged for most firms, the indicator points to a slight tightening.
    • The Business Outlook Survey indicator continues to be high, signalling positive business sentiment.

    Full release here

    CAD is now the second strongest for the day while JPY remains the weakest one.

    H action bias in CADJPY turned positive again.

    CADJPY’s retreat was contained above 83.36 support, maintaining near term bullishness. The rebound from 80.52 is likely ready to resume for 38.2% retracement of 91.56 to 80.52 at 84.73.

    ECB: Global recovery projected to be shallow

      ECB said in its monthly economic bulletin that more recent information “points to a stabilisation in global growth”. In particular, survey-based data like PMI point to a “moderate recovery in manufacturing output growth and some moderation in services output growth”. Nevertheless, global recovery is projected to be “shallow”, reflecting moderation of growth in advanced economies and sluggishness in some emerging markets.

      For Eurozone, however, ongoing weakness of international trade continues to weigh on manufacturing sector and is dampening investment growth. Survey-based data, while remaining weak overall, point to some stabilization of slowdown too.

      Measures of underlying inflation in Eurozone “generally remained muted”. ECB added, that “market-based indicators of longer-term inflation expectations have remained at very low levels, while survey-based expectations also stand at historical lows.

      Full ECB Monthly Bulletin here.

      Gold heading to 1172 after disappointing rebound

        Gold’s strong break of 1236.66 today confirms resumption of whole decline from 1365.24, after a rather disappointing decline. It also confirms that medium term rise from 1122.81 has completed at 1365.24. And more importantly, it also affirm the view that price actions from 1046.54 low are corrective in nature, as was limited by 38.2% retracement of 1920.94 to 1046.54 at 1380.56.

        For the near term to medium term further fall is now in favor to 61.8% retracement of 1045.54 to 1375.15 at 1172.69. There is also risk of revisiting 1046.54 low, depending on downside momentum. Such development will be an indication of underlying dollar strength.

        Gold downside breakout, heading to 1750

          Gold’s selloff today finally pushes it to a downside break out. For now, near term outlook will stay bearish as long as 1879.75 minor resistance holds. Sustained trading below 1848.39 support will confirm resumption of whole decline from 2075.18. Such fall is seen as a correction to the long term up trend from 1160.17. Next medium term target will be 55 week EMA (now at 1750.89). Though, we’d expect strong support from 38.2% retracement of 1160.17 to 2075.18 at 1725.64 to contain downside. Meanwhile, break of 1879.75 resistance will dampen this bearish view and turn outlook neutral first.

          Japan PMI composite dropped to 47.0, Q1 recovery hope dashed

            Japan PMI Manufacturing dropped to 47.6 in February, down from 48.8. PMI services dropped to sharply to 46.7, down from 51.0, dipped into contraction. PMI Composite also dropped to 47.0, down from 50.1, now in contraction too.

            Joe Hayes, Economist at IHS Markit, said: “latest PMI data dash any hopes of a first quarter recovery in Japan and significantly raise the prospect of a technical recession”. February’s data “stack the odds heavily against Q1 growth, despite Abe’s best efforts to stimulate the economy after the sales tax hike”.

            Full release here.


            Gold breaking down, heading back to 1676 support

              Gold drops notably in early US session and it’s now heading back to 1700 handle. Current development argues that corrective recovery from 1676.65 has completed at 1755.29, ahead of 1764.31 support turned resistance. It’s also held well below falling 55 day EMA, keeping near term outlook bearish. Corrective fall from 2075.18 is likely still in progress.

              Break of 1676.65 will extend such correction to 50% retracement of 1160.17 to 2075.18 at 1617.67. We’ll look for bottoming signals again there.

              UK government Brexit scenario analysis, from -10.7% GDP contraction to -0.1% in 15 years.

                The UK Government released a series of five papers on Brexit today. The most anticipated in the one on long term economic analysis of Brexit. In short, according the government, in 15 years by 2034 after Brexit:

                • GDP could contract as much as -10.7% in case of no-deal Brexit with zero net inflow of EEA workers
                • GDP would contract just -1.4% if it’s modelled after EEA-type (European Economic Area) of deal, that is, Norway kind of deal.
                • Under Prime Minister Theresa’s Plan, GDP would contract only -0.6% if there is no change in migration arrangement. Or, in the best case scenario, GDP could just contract -0.1%.

                The EU Exit: Long-term economic analysis report here. And, all five papers here.

                In the parliament, Prime Minister Theresa May hailed her own plan and said “What the analysis shows, it does show that this deal that we have negotiated is the best deal for our jobs and our economy which delivers on the results of the referendum.”

                Gold to break 1200 finally, head towards 1172 fibonacci level

                  Gold finally breaks out of consolidation today and reaches as low as 1201.24 so far. The down trend from 1365.24 has resumed. Near term outlook will now stay bearish as long as 1217.31 resistance holds. Next target is 1172.07 fibonacci level. On the upside, though, break of 1217.31 will indicate short term bottoming. And rebound could be seen back to 55 day EMA (now at 1247.14 before staging another decline.

                  Currently decline from 1365.24 is viewed as part of the long term sideway pattern from 1046.54 (2015 low). Sustained break of 61.8% retracement of 1045.65 to 1375.15 will pave the way to 1046.54/1122/81 support zone. At this point, we’re not expecting a break there to resume long term down trend yet. Hence, we’ll look for bottoming signal below 1122.81.

                  Gold resumes correction, 1700 looks vulnerable

                    Gold’s recovery was rejected by 1760.46 support and resistance and decline resumed quickly by breaking through 1717.01 temporary low. 1700 handle is now looking vulnerable. The corrective pattern from 2075.18 is extending with fall from 1959.16 as the third leg. Current fall might now target 50% retracement of 1160.17 to 2075.18 at 1617.67.

                    Break of 1759.72 minor resistance is now needed to be the third sign of short term bottoming. Further break of 1815.83 resistance is needed to confirm. Otherwise, risk will stay on the downside in gold as the correction in favor in extend lower.

                    WTI crude oil resumes recent free fall

                      WTI crude oil’s recent free fall resumes today by taking out 54.84 low and reaches as low as 53.65 so far. Near term outlook will now stay bearish as long as 58.04 resistance holds even in case of recovery.

                      Fall from 77.06 is at least correcting the up trend from 27.69 to 77.06. Based on current momentum, it could indeed be an impulsive move rather than a corrective move. In either case, deeper decline should be seen to 61.8% retracement of 27.69 to 77.06 at 46.54 in medium term.

                      Also, a net effect in the currency markets is a drag on the Canadian Dollar.


                      USD finally starting to pull back after clearing CPI risk

                        Dollar drops broadly, except versus pound after inflation data.

                        Headline CPI accelerated to 2.5% yoy in April, up from 2.4% yoy and met expectation. However, core CPI was unchanged at 2.1% yoy, below expectation of 2.2% yoy.

                        Also from US, initial jobless claims was unchanged at 211k in the week ended May 5, sticking to the lowest level in 49 years for the second straight week. Four-week moving average dropped -5.5k to 216k, touching the lowest level since December 1969. Continuing claims rose 3k to 1.79m in the week ended April 28.

                        The momentum in the post data USD selloff argues that traders are finally relieved that can take profits from recent long stretched rally. 1.1938 minor resistance in EUR/USD and 0.9982 minor support in USD/CHF will be the key levels to watch to confirm this case.

                        5 Star to find someone other than Savona as economy minister

                          The anti-establishment 5-Star Movement in Italy in is working hard on forming a government to solve the current political turmoil. It’s leader Luigi Di Maio met with President Sergio Mattarella today. After that, Di Maio said “let’s find someone of the same caliber as Savona, who would still remain in the government in another ministry.” And “If the League agrees … we can still form a government.”

                          Di Maio is now trying to find that “point of compromise” between Mattaralla and eurosceptic League. No name is thrown out yet and it could take some time to negotiate with League. Note that League leade rMatteo Salvini is pushing for another election as the effort to form a coalition government collapsed.

                          But after all, the development s calmed the markets mildly as Euro also recovered.

                          US retail sales flat in April, ex-auto sales dropped -0.8% mom

                            US retail sales was flat at USD 619.9B in April, well below expectation of 0.5% mom rise. Ex-auto sales dropped -0.8% mom, missed expectation of 0.9% mom rise. Ex-gasoline sales rose 0.1% mom. Ex-auto, ex-gasoline sales dropped -0.8% mom.

                            Full release here.

                            Gold selloff resumes, strong support expected around 1725

                              Gold’s selloff resumes today by breaking through 1800 handle and hits as low as 1764.31 so far. Further decline is now expected as long as 1818.26 resistance holds. Current decline from 2075.18 is seen as correcting whole up trend from 1160.17. Deeper fall should be seen to 55 week EMA (now at 1749.77) and possibly slightly below.

                              But we’d expect strong support from 38.2% retracement of 1160.17 to 2075.18 at 1725.64 to contain downside and bring rebound. However, Sustained break of 1749.77 could bring even deeper correction to 61.8% retracement at 1509.70.

                              Gold finally breaks out, to the downside, 1160 next

                                Gold finally breaks out from recent range, to the downside, through 1187.58 support. The development indicates that corrective rebound from 1160.36 has completed. We mark the end point of the correction at 1211.05. Deeper fall should be seen back to 1160.36 low next.

                                In the bigger picture, Gold is held comfortably below falling 55 day EMA. That suggests fall from 1365.24 is still in progress. Break of 1160.36 low will confirm decline resumption. In that case, next downside target will be 61.8% projection of 1365.24 to 1160.36 from 1211.05 at 1084.43.

                                Germany said to start exiting lockdown on April 19

                                  Reuters reported today that the German Interior Ministry is already drafting a plan to end lockdown and return the country to normal lift, starting April 19. The document assumed that the coronavirus pandemic will last until 2021. But with proper measures, the average number of people infected by one person could be limited below one.

                                  the plan is backed by vigorous mechanism that track more than 80% of people with whom an infected person had contacted, and quarantine them. People will be orders to wear masks in public transport and factories and public buildings. Social-distancing measures will remain in place. Events and parties will be forbidden. But shops and schools could reopen while border controls could be relaxed.

                                  Separately, government spokesman said “even if some people are demanding it, the government can’t yet give an exit day, a firm date from which everything will be different and the measures relaxed.”

                                  USD/CNH defending 7 handle as US-China tension escalates

                                    Some volatility is seen in USD/CNH today after the pair dips to as low as 6.9633 on broad based Dollar weakness, but recovers back above 7 handle quickly. Escalating US-China political tension is seen as a major factor driving the moves.

                                    China’s foreign Ministry spokesman Wang Wenbin revealed that the US government gave China three days to close its consulate in Houston. Wang criticized that as “unprecedented escalation” and pledged to “react with firm counter measures if the US doesn’t “revoke this erroneous decision”.

                                    Euro in broad based selloff, another update on EUR/JPY short

                                      Euro is suffering steep selloff just ahead of European session. In particular, EUR/USD’s break of 1.1507 support confirms medium term down trend resumption. The pair should be targeting 1.1186 fibonacci level next.

                                      EUR/CHF is on course for 1.1366 support. Based on current momentum, the medium term correction from 1.2004 should be resuming for 1.1198 key support level before bottoming.

                                      EUR/GBP also suffers steep pull back after failing 0.9043 fibonacci level. But for the cross, outlook stays bullish as long as 0.8854 support holds.

                                      EUR/JPY’s break of 127.13 support confirms our view that corrective rise from 124.61 has completed with three waves up to 131.97 already. The larger fall from 137.49 could already be resuming.

                                      Here is an update to our short position (sold at 128.60) as mentioned in prior comment. The development is in line with our expectations so far. We’ll hold short in EUR/JPY and lower the stop to 128.10 (slightly above 128.04 minor resistance). The stop is relatively wide for giving the position a bit of space to breathe in case of mild recovery. As noted before, we’re indeed eyeing at least a test on 124.61 low. We’re decide whether to take profit around there later, based on downside momentum in the cross.

                                      Euro and DAX fall on terrible German manufacturing data, bund yield may turn negative

                                        Euro dives broadly in Europeans as terrible German manufacturing data points to worsening contraction in the sector. DAX also reversed initial gain and is currently down around -0.7%. Germany 10 year yield dropped to as low as 0.002, down -0.042, on the brink of turning negative.

                                        With 1.1335 minor support broken, EUR/USD’s rebound form 1.1176 should have completed at 1.1448. Deeper fall would be seen back to 1.1176 low.

                                        In short, Germany PMI manufacturing dropped sharply to 44.7, down from 47.6 and missed expectation of 48.0. If not for services sector, the German economy should already be in recession. Forward looking indicators are not encouraging with overall job creation at its lowest since 2016. The worst may not be over yet.

                                        New Zealand Dollar jumps as RBNZ sectoral factor model CPI improved

                                          New Zealand CPI rose 0.4% qoq, 1.5% yoy in Q2, accelerated from Q1’s 0.5% qoq and 1.1% yoy. The headline number missed expectations of 0.5% qoq, 1.6% yoy. However New Zealand Dollar later reacts to RBNZ’s own prices data. Most notably, the sectoral factor model CPI rose to 1.7% yoy in Q2. There were continuous imrpvements since last year from 1.4% in Q3 2017 to 1.5% in Q4 2017 to 1.6% in Q1 2018.

                                          The sectoral factor model CPI was created by RBNA to estimate the common component of inflation in the CPI basket, the tradable basket, and the non-tradable basket, based upon separate factors for the tradable and non-tradable sectors. The data excludes GST. It’s one of RBNZ’s preferred core inflation gauge.

                                          AUD/NZD dives sharply after the release after it was one again rejected by 61.8% retracement of 1.1289 to 1.0486 at 1.0982. Deeper fall should now be seen back to 1.0844 support first. Further break of 55 day EMA (now at 1.0823) will target 1.0656 key support level.