Sample Category Title

• USD/CAD surges as oil prices decline and US Dollar rises.
• Market anticipates less rate cuts in 2025 due to Trump’s return, impacting interest rate differentials.
• Potential US tariffs add headwinds for the Canadian Dollar.

USD/CAD has been on a tear since the back end of September, rising some 550 pips over the past 6 weeks. The move coincided with a stronger US Dollar and weaker Oil prices.

Oil Continues to Weigh on the Canadian Dollar

The Canadian Dollars struggles since the back end of September have coincided with a weaker Oil price. Oil prices have faced significant headwinds over the past few months as expectations around demand continue to be downgraded. Just yesterday OPEC announced its fourth consecutive downgrade to its demand forecasts, with China cited as the primary reason.

Interest Rate Differentials Coming Into Play?

The US Election is out of the way and with Donald Trump scheduled to return to the White House on January 20, 2025 markets are already pricing in less rate cuts in 2025. This has left the possibility of interest rate differential coming into play.

As things stand, markets are pricing in around 77 bps of cuts by the Fed and around 91 bps from the Bank of Canada. This leaves the Canadian Dollar in a vulnerable position as Trump is yet to take office. If President Elect Trump moves forward with tariffs and inflationary risks do rear their head, the rate differential could widen adding further headwinds for the Canadian Dollar.

On Tuesday, Neel Kashkari, the President of the Minneapolis Fed, said the central bank is still confident in fighting temporary inflation, but it’s too soon to say they’ve completely won. He also mentioned that the Fed won’t predict how Trump’s policies will affect the economy until they have more details about those policies.

The calendar is quiet this week from Canada but today we just had US Inflation data which came out in line with forecasts. The impact was rather muted but it did firm up rate cut expectations for the Fed at the December meeting.

Technical Analysis

USD/CAD has been consolidating for the last two trading weeks in a 100 pip range between the 1.3850 and 1.3950 handles.

Historically USD/CAD tends to follow up periods of consolidation with significant swing moves in either direction. This means that USD/CAD could be poised for a significant breakout in the days ahead.

The 1.4000 handle remains elusive at this point and given that US Inflation barely moved the needle, the case for a retracement before a push toward the 1.4000 handle looks appealing. However, any pullback may be seen as an opportunity for would be bulls to get involved.

Immediate support rests at 1.3900 before the 1.3854 and 1.3793 come into focus.

Conversely a break above recent highs at 1.3956 could finally open up a break of the psychological 1.4000 barrier with resistance resting around the 1.42500 handle.

USD/CAD Daily Chart, November 13, 2024

Source: TradingView (click to enlarge)

Support

• 1.3900
• 1.3854
• 1.3793

Resistance

• 1.3958
• 1.4000
• 1.4250

Markets

October CPI inflation was the first really important US data series for release after the Trump/Republican election victory. Concrete policy measures from the new US administration will decide which way activity and in inflation will ultimately go. Data in the meantime will help to define the starting point for Fed policy and the subsequent market reaction function. Ahead of the publication of the US CPI data, the Trump trade already slowed. US yields stabilized and so did the dollar. US equity investors pondered how much good news was already discounted as major indices touched record levels of late. The US CPI report printed exactly in line with expectations (headline 0.2% M/M and 2.6% Y/Y from 2.4% in September; core 0.3% M/M and 3.3% Y/Y, unchanged). Markets apparently were positioned for a potential upward surprise. Given a reflationary Trump agenda, this could have pushed the Fed to a more cautious approach, especially as US activity remains strong for now. Despite the inline outcome services prices remained elevated at 0.4% M/M and 4.7% Y/Y. So were housing related costs (0.4% M/M), fuels and utilities 0.8% M/M, amongst others , also rose. A disinflationary dynamics was seen in non-durables (-0.3% M/M), education and communication (-0.3%) and apparel and footwear (-2.0%). The US yield curve bull steepened after the data release with yields declining between 8.5 bps (2-y) and 4 bps (30-y). The reaction probably tells more about the market position than on the content of the inflation report. The report is seen as leaving the door open for a 25 bps Fed rate cut in December (now 75% discounted vs about 60% before the release). Bunds ‘for once’ underperform Treasuries today, with yields ‘rising’ about 1-2 bp in the 2-10-y sector (gains were up 6.0 bps before the US CPI release). Maybe the bottoming in German/EMU yields was at least partially due to comments for the Christian Democrat leader Herz. He indicated his party is open consider some reforms in the country’s strict borrowing rules, e.g. to finance investments. Recent USD rebound, while still setting minor now ST top levels against some other majors earlier today, already showed tentative signs of losing some momentum. It lost some, admittedly still modest ground, after the CPI release (DXY 105.85 from an intraday top of 106.2, EUR/USD 1.0630 from intraday low near 1.0595). The report & ‘setback’ in yields and the dollar didn’t help European equities (Eurostoxx -0.4%). US equities opened little changed. In a broader perspective, the report created a breather for the post-election phase of the Trump-trade, but is no game-changer.

News & Views

The Riksbank released the meeting minutes of the November policy meeting. It upped the pace of rate cuts from 25 bps to 50 bps (to 2.75%). Governor Thedeen in the minutes said that the central bank “should act on the information we have at hand here and now, which speaks in favor of a continued, but somewhat faster normalization of monetary policy.” There was a specific focus on the need for domestic demand to pick up to offset (increasing worries about) lackluster and volatile external demand. The meeting took place one day after the US elections in which it became obvious pretty soon that Trump would be the next president. The Riksbank noted the opposite risks that trade barriers pose for inflation. The latter is currently rising (1.5%) at a rate slower than the central bank’s 2% target. A further weakening in the Swedish currency due to ongoing rate cuts is seen as an upside risk to inflation. But unless SEK would depreciate materially and with the board downplaying the passthrough effects, the current weak krone probably won’t derail the central bank’s ongoing easing plans. EUR/SEK is hovering around 11.6 recently. Governor Thedeen labelled money market pricing of the Riksbank’s terminal rate just above 2% as reasonable.

China’s ministry of Finance today announced it is cutting home purchase deed taxes from 3% to 1% for first- and second-house flat buyers. It’s the latest measure of a series that also include lower borrowing costs on existing mortgages, relaxing buying curbs in big cities and easing downpayment requirements. Policymakers hope to shore up the country’s ailing property sector, which is also weighing on consumer demand and business sentiment. Finance minister Lan Fo’an a few weeks ago unveiled a $1.4tn debt swap to ease the burden on local governments and pledged to carry out “more forceful” fiscal policies next year.

Daily Pivots: (S1) 153.72; (P) 154.32; (R1) 155.23; More...

Intraday bias in USD/JPY remains on the upside at this point. Current rise from 139.57 will target 61.8% projection of 141.63 to 153.87 from 151.27 at 158.8. On the downside, below 153.40 minor support will turn intraday bias neutral again first. But further rally is expected as long as 151.27 support holds, in case of retreat.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 0.8780; (P) 0.8808; (R1) 0.8845; More…

Intraday bias in USD/CHF is turned neutral first with current retreat. Outlook will stay bullish as long as 0.8700 support holds, in case of retreat. Break of 0.8840 temporary top will resume the rise from 0.8374 to 61.8% retracement of 0.9223 to 0.8374 at 0.8899. Sustained trading above there will pave the way towards 0.9223 high.

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern. Rise from 0.8374 is seen as the third leg. Overall outlook will continue to stay bearish as long as 0.9223 resistance holds. Break of 0.8332 low is in favor at a later stage when the consolidation completes.

Daily Pivots: (S1) 1.2685; (P) 1.2781; (R1) 1.2843; More...

Outlook in GBP/USD is unchanged and intraday bias stays on the downside. Decisive break of 61.8% retracement of 1.2298 to 1.3433 at 1.2732 will extend the decline from 1.3433 to 1.2298 key support. On the upside, above 1.2833 support turned resistance will turn intraday bias neutral and bring consolidations first.

In the bigger picture, considering mildly bearish divergence condition in D MACD, a medium term top is likely in place at 1.3433 already. Price actions from there are seen as correction to whole up trend from 1.0351 (2022 low). Deeper decline would be seen to 38.2% retracement of 1.0351 to 1.3433 at 1.2256, which is close to 1.2298 structural support. Strong support should be seen there to bring rebound.

The Consumer Price Index (CPI) rose 0.2% month-on-month (m/m) in October, in line with the consensus forecast. On a twelve-month basis, CPI ticked up to 2.6% (from 2.4% in September).

• Energy prices were flat last month, as a pullback in gasoline prices (-0.9% m/m) was offset by an uptick in electricity costs (+1.0% m/m). Food prices rose 0.2% m/m, following a sharp 0.4% m/m gain in September.

Excluding food and energy, core prices rose 0.3% m/m, matching the two prior-months' gains. The twelve-month change held steady at 3.3%, while the three-month annualized shot higher to 3.6% (from 3.1% in September).

• Price growth on core services were up 0.35% m/m, in line with September's gain. On a year-ago basis, services prices are up 4.8% or roughly two percentage points above its pre-pandemic pace of growth when inflation was running closer to 2%.
• Primary shelter costs rose 0.4% m/m, following a gain of 0.3% m/m in September. While well off its 2023 highs of over 8%, primary shelter costs remain elevated at 5.1% y/y.

Price growth of non-housing services inflation (aka "supercore") remained firm, rising 0.3% m/m – roughly in line with the average gain recorded over the past three months. The continued strength was primarily driven by another strong gain in airline fares (+3.2% m/m), recreational services (+0.7% m/m) and to a lesser extent, medical care services (+0.4% m/m).

Core goods prices were flat in October, after registering a gain the month prior. A pullback in apparel (-1.5% m/m) and education & communication goods (-1.1% m/m) helped to offset a sharp gain in used vehicle prices (+2.7% m/m).

Daily Pivots: (S1) 1.0591; (P) 1.0627; (R1) 1.0659; More...

Intraday bias in EUR/USD is turned neutral first with current recovery. But further decline is expected as long as 1.0760 support turned resistance holds. Break of 1.0592 temporary low will resume the fall from 1.1213 to 100% projection of 1.1213 to 1.0760 from 1.0936 at 1.0483.

In the bigger picture, price actions from 1.1274 (2023 high) are seen as a consolidation pattern to up trend from 0.9534 (2022 low), with fall from 1.1213 as the third leg. Downside should be contained by 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404, to bring up trend resumption at a later stage.

US stock futures have jumped in a relief rally following release of October US CPI data, which, while showing an uptick in headline inflation and steady core inflation, stayed within expectations. This in-line report eases fears of an inflation surprise that could disrupt Fed's gradual easing path. Market sentiment has therefore strengthened, with Fed fund futures still pricing a 70% likelihood of a 25bps rate cut at the December FOMC meeting, indicating that the Fed’s near term rate-cut path remains intact for now.

Following the CPI release, Dollar eased across the board as risk appetite returned, although it maintains its lead as the week's top performer. Canadian Dollar follows as the second strongest, while New Zealand Dollar rounds out the strongest three. Meanwhile, Sterling is the week’s weakest performer, overshadowed by continued caution despite comments from BoE’s top hawk. Euro and Yen also softened. Australian Dollar and Swiss Franc occupy middle ground.

Australia's employment data will be a major focus in the upcoming Asian session while RBA Governor Michele Bullock is scheduled to speak too. Technically, AUD/USD is so far still holding on to 61.8% retracement of 0.6269 to 0.6941 at 0.6526. But prior rejection by falling 55 D EMA is a near term bearish sign. Sustained break of 0.6526 will extend the fall from 0.6941 towards 0.6269/6348 support zone.

In Europe, at the time of writing, FTSE is down -0.06%. DAX is down -0.38%. CAC is down -0.37%. UK 10-year yield is down -0.0419 at 4.469. Germany 10-year yield is up 0.006 at 2.375. Earlier in Asia, Nikkei fell -1.66%. Hong Kong HSI fell -0.12%. China Shanghai SSE rose 0.51%. Singapore Strait Times rose 0.24%. Japan 10-year JGB yield rose 0.0323 to 1.042.

US CPI rises to 2.6% yoy in Oct, core CPI unchanged at 3.3% yoy

US CPI rose 0.2% mom in October while core CPI (ex food and energy) rose 0.3% mom, matched expectations. The index for shelter rose 0.4 mom, accounting for over half of the monthly all items increase. Food index increased 0.2% mom. Energy index was unchanged.

Over the last 12 months, CPI accelerated from 2.4% yoy to 2.6% yoy, matched expectations. Core CPI was unchanged at 3.3% yoy. Energy index decreased -4.9 yoy. Food index increased 2.1% yoy.

BoE's Mann advocates 'activist' approach as inflation not yet been vanquished

BoE MPC member Catherine Mann reiterated her hawkish stance on inflation during a panel discussion today, emphasizing the need for an "activist" approach to monetary policy. Mann expressed that she prefers to wait for more concrete evidence of underlying inflationary pressures easing before considering any policy loosening.

She highlighted the significance of monetary policy's immediate effects on the economy, stating, "Part of my activist strategy is when I move, I will move big."

Mann underscored that while the traditional view of long policy lags—the "olden day story," as she referred to it—still holds some relevance, recent research indicates that rate adjustments can have prompt impacts on firms' pricing decisions and inflation expectations.

As BoE's most hawkish member, Mann maintained her cautious perspective on the inflation outlook. She pointed out the persistence of "pretty sticky" services inflation and cautioned about the potential for increased volatility in prices. "For those two reasons I say that inflation has not yet been vanquished," she concluded.

ECB’s Nagel defends rate path, warns of 1% economic hit from Trump tariffs

In an interview with Die Zeit, German ECB Governing Council member Joachim Nagel reinforced ECB’s current rate path as necessary, citing persistent inflationary pressures, particularly within the services sector due to rising wages.

Nagel emphasized, "We are not exaggerating. There is still noticeable price pressure" .

Nagel also voiced concern over economic fallout from US President-elect Donald Trump’s proposed tariffs, estimating they could trim as much as 1% from Germany’s economic output if enacted.

“If the new tariffs actually materialize, we could even slip into negative territory,” he warned, a worrisome prospect as Germany already faces weak growth projections.

The German economy is anticipated to stagnate through 2024, with growth in 2025 expected to remain below 1%.

ECB’s Villeroy sees more rate cuts as US inflation risks resurface under Trump

French ECB Governing Council member Francois Villeroy de Galhau shared his outlook on inflation and global growth risks today with France Inter, suggesting a period of moderate inflation within France alongside more rate cuts from ECB. He also projected that France’s unemployment rate could temporarily increase to around 8% before stabilizing back to 7%.

Villeroy raised concerns over the inflationary impact of US President-elect Donald Trump’s proposed economic policies, specifically warning that Trump’s program “risks bringing back inflation to the United States.” He suggested this could slow global growth, although the full extent of this impact remains uncertain and could vary between the US, China, and Europe.

A particular focus of Villeroy's remarks was on Trump’s proposed tariffs, which aim to eliminate the US trade deficit by imposing a 10% or higher tax on all imported goods.

Villeroy argued that such protectionist policies could ultimately hurt US consumers, noting, “Protectionism almost always means reduced purchasing power for consumers.”

Japan’s PPI rises 3.4% yoy in Oct, highest since mid-2023

Japan’s PPI rose from 3.1% yoy to 3.4% yoy in October, surpassing market expectations of 3.0% and marking the highest annual increase since July 2023. On a monthly basis, PPI advanced by 0.2%, reflecting sustained inflationary pressure within Japan’s production sector.

The data also revealed a less pronounced decline in Yen-based import prices, down -2.2% yoy compared to a -2.5% drop in September, signaling that import costs may be stabilizing. This relative improvement aligns with a 4.3% mom increase in Yen's exchange rate. However, on a monthly scale, import prices saw a notable 3.0% rise after a -2.8% decrease in September.

Australia's wage growth slows as public sector outpaces private for first time since 2020

Australia's wage growth softened in Q3, with the Wage Price Index rising by 0.8% qoq, slightly missing the forecast of 0.9%. On an annual basis, wage growth slowed from 4.1% yoy to 3.5% yoy, falling short of the expected 3.6% yoy and marking the lowest annual increase since Q4 2022. This deceleration follows four consecutive quarters of 4% or higher wage growth, pointing to easing in wage-driven inflation pressures.

For the first time since late 2020, public sector wage growth surpassed that of the private sector. Public sector wages rose by 3.7% yoy, higher than the 3.5% yoy recorded in the same quarter last year but down from the recent high of 4.2% yoy in Q4 2023, lowest since Q3 2022.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0591; (P) 1.0627; (R1) 1.0659; More...

Intraday bias in EUR/USD is turned neutral first with current recovery. But further decline is expected as long as 1.0760 support turned resistance holds. Break of 1.0592 temporary low will resume the fall from 1.1213 to 100% projection of 1.1213 to 1.0760 from 1.0936 at 1.0483.

In the bigger picture, price actions from 1.1274 (2023 high) are seen as a consolidation pattern to up trend from 0.9534 (2022 low), with fall from 1.1213 as the third leg. Downside should be contained by 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404, to bring up trend resumption at a later stage.

US CPI rose 0.2% mom in October while core CPI (ex food and energy) rose 0.3% mom, matched expectations. The index for shelter rose 0.4 mom, accounting for over half of the monthly all items increase. Food index increased 0.2% mom. Energy index was unchanged.

Over the last 12 months, CPI accelerated from 2.4% yoy to 2.6% yoy, matched expectations. Core CPI was unchanged at 3.3% yoy. Energy index decreased -4.9 yoy. Food index increased 2.1% yoy.

Full US CPI release here.

AUDUSD remains in red for the fourth straight day, but bears slowed on Wednesday and action holding within a narrow range just above three-month low.

Technical studies remain bearish on daily chart and favor further downside, though oversold conditions suggest that consolidation is likely to precede.

Broken daily Tenkan-sen (0.6600) should cap upticks to marks positioning for fresh push lower and attack at 0.6488 Fibo support (76.4% of 0.6348/0.6942).

Only firm break of daily Kijun-sen / cloud base (0.6637/45 respectively) would sideline bears.

Fundamentals, however, are likely to be pair’s key driver today, with Australia’s wage growth slowing in Q3 to the lowest in almost two years, though the data are unlikely to have significant impact on RBA’s stance on interest rates.

Focus is on release of US CPI (Oct y/y 2.6% f/c vs Sep 2.4%; core Oct 3.3% f/c, unchanged from Sep), which will be key driver today and Australia’s Oct labor report (due early Thursday).

Res: 0.6537; 0.6575; 0.6600; 0.6637.
Sup: 0.6512; 0.6488; 0.6400; 0.6348.