US PMI Manufacturing rose 0.1 to 53.3 in October, matched expectation. PMI services also rose to 56.0, up from 54.6, beat expectation of 54.5. PMI Composite rose to 55.5, up from 54.3, hit a 20-month high.
Chris Williamson, Chief Business Economist at IHS Markit, said:
“The US economy looks to have started the fourth quarter on a strong footing, with business activity growing at a rate not seen since early 2019. The service sector led the expansion as increasing numbers of companies adapted to life with COVID-19, while manufacturing continued to report solid growth amid rising demand from households and businesses.
“A slowdown in hiring and weaker new order inflows were in part attributable to hesitancy in decision making ahead of the presidential election. More encouragingly, business optimism surged higher, indicating that firms have become increasingly positive about prospects for the coming year amid hopes of renewed stimulus, COVID-19 containment measures gradually easing and greater certainty for businesses and households after the presidential elections.”
BoC to stand pat while EUR/CAD preparing for bullish breakout
BoC is widely expected to keep the overnight rate unchanged at the effective lower bound of 0.25% this week. Bank rate and deposit rate will be kept at 0.50% and 0.25% respectively. Meanwhile, as the central has already been tweaking its asset purchases program, there might be some more changes to be announced at the meeting. Though, they shouldn’t be viewed as a change in the monetary stance, but just some adjustments to fine-tune the program.
Forward guidance would be kept unchanged too as policy rate will be kept at the “effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved”. “QE program will continue until the recovery is well underway”. The question is, whether Governor Tiff Macklem would take the opportunity to start push the message that BoC would not hike before the Fed.
EUR/CAD is building the case of a bullish break out. EUR/CAD’s price action from 1.5978 are clearly corrective, which could have completed at 1.5389. Break of 1.5738 resistance would confirm this view and bring resumption rise from 1.5054 through 1.5978. Meanwhile, USD/CAD’s downside attempt has been contained well above 1.2994 low so far. Break of 1.3529 resistance would extend the pattern from 1.2994 with another rising leg through 1.3418 resistance. If BoC announce this week is going to trigger some selloff in the Canadian, we’d prefer to see the break of these two levels together to double confirm.