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Consumer prices rose a faster-than-expected 1.7% year-on-year in Canada in January (consensus was for 1.5%), edging down from 1.9% in December.

The deceleration in headline inflation was mainly an energy price story. Energy prices rose swiftly last January, and as those gains fell out of the index, the year-on-year rate fell to 2.4% (from 4.5% in December). Prices were up a robust 0.5% on a seasonally adjusted month-on-month basis.

Food price inflation meanwhile picked up steam, rising 2.3% (up from 2.0%) and rising at the fastest rate since April 2016. Higher prices at restaurants led the acceleration, rising to 3.7% (from 2.9% in December).

Core price measures showed a firming trend with the CPI-common moving up from 1.6% to 1.8%, while CPI-trim and CPI-median remained unchanged at 1.8% and 1.9% respectively.

Key Implications

The impact of minimum wage legislation in Ontario was hard to ascertain in the January employment report, but easier to see in the price data. The acceleration in food price growth came in large part due to restaurants and in Ontario. Child care and housekeeping services prices also accelerated in the month.

The Bank of Canada may look through the one-time impact of higher minimum wages, but it cannot ignore the broader evidence of price pressures that are becoming apparent. The firming in core measures in particular, suggests that the strong economic growth that Canada has experienced over the past year is doing its job in pushing inflation toward the Bank's 2% target.

Daily Pivots: (S1) 1.2276; (P) 1.2314 (R1) 1.2369; More....

EUR/USD is staying in corrective trading in range of 1.2205/2555. Intraday bias remains neutral. On the upside, break of 1.2555 will revive the bullish case of up trend resumption and target 100% projection of 1.0569 to 1.2091 from 1.1553 at 1.3075. However, break of 1.2205 will confirm rejection by 1.2516 key fibonacci level and trend reversal.

In the bigger picture, key fibonacci level at 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 remains intact despite attempts to break. Hence, rise from 1.0339 medium term bottom is still seen as a corrective move for the moment. Rejection from 1.2516 will maintain long term bearish outlook and keep the case for retesting 1.0039 alive. However, sustained break of 1.2516 will carry larger bullish implication and target 61.8% retracement of 1.6039 to 1.0339 at 1.3862.

Daily Pivots: (S1) 1.3878; (P) 1.3933; (R1) 1.4010; More....

Intraday bias in GBP/USD remains neutral at this point. On the upside, break of 1.4144 will extend the rebound from 1.3764 and target a test on 1.4345 resistance. Break there will resume larger up trend and target long term trend line resistance (now at 1.5105). On the downside, below 1.3764 will extend the correction from 1.4345 to 1.3651 resistance turned support instead.

In the bigger picture, as long as 1.3038 support holds, medium term outlook in GBP/USD will remains bullish. Rise from 1.1946 is at least correcting the long term down from 2007 high at 2.1161. Further rally would be seen back to 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466. However, GBP/USD fails to sustain above 55 month EMA (now at 1.4279) so far. Break of 1.3038 support, will suggests that rise from 1.1946 has completed and will turn outlook bearish for retesting this low.

Daily Pivots: (S1) 0.9298; (P) 0.9354; (R1) 0.9382; More...

USD/CHF's consolidation from 0.9186 is still in progress and intraday bias remains neutral. Near term outlook stays bearish with 0.9469 resistance intact. On the downside break of 0.9186 will extend the larger down trend to 0.9115 medium term projection level next. However, considering bullish convergence condition in 4 hour MACD, break of 0.9469 will indicate near term reversal and turn outlook bullish for 55 day EMA (now at 0.9527) and above.

In the bigger picture, fall from 1.0342 is developing into a medium term down trend. Deeper decline should be seen to 100% projection of 1.0342 to 0.9420 from 1.0037 at 0.9115. Break will target 161.8% projection at 0.8545. In any case, sustained trading above 55 day EMA is needed to be the first sign of medium term reversal. Otherwise, outlook will stay bearish even in case of strong rebound.

Daily Pivots: (S1) 106.31; (P) 107.03; (R1) 107.48; More...

Intraday bias in USD/JPY remains neutral as consolidation from 105.54 is extending. Outlook remains bearish with 108.27 resistance intact and deeper fall is expected. Break of 105.54 will extend the larger fall from 118.65 and target 100% projection of 118.65 to 108.12 from 114.73 at 104.20 next. However, break of 107.72 will be the first sign of near term reversal and will target 110.47 resistance for confirmation.

In the bigger picture, current development argues that the corrective pattern from 118.65 is extending. The solid break of 61.8% retracement of 98.97 to 118.65 at 106.48. now suggests that the pattern from 125.85 high is possibly extending. Deeper fall could be seen through 98.97 key support (2016 low). This bearish case will now be favored as long as 110.47 resistance holds.

Statistics Canada data this morning showed that headline inflation in Canada slowed last month, while measures of underlying prices strengthened to their highest level in 18-months.

Canada's consumer-price index rose +1.7% y/y in January, following a +1.9% advance in December.

Market expectations were for a +1.5% lift. On a month-over-month basis, prices rose +0.7% in January.

Digging deeper, today's report indicated underlying, or core, inflation strengthened in the month. Underlying prices rose in a range from +1.8% to +1.9%, for an average of +1.83% – the highest level since mid-2016. The average in the previous month was +1.76%.

The 'loonie' is up +0.51% against the U.S dollar, trading atop of C$1.2659. The CAD was trading north of C$1.2712 just before this morning's release.

Daily Pivots: (S1) 1.2667; (P) 1.2709; (R1) 1.2748; More....

Breaching 1.2624 minor support suggests temporary topping at 1.2757. Intraday bias in USD/CAD is turned neutral first. Further rise will remain in favor as long as 1.2450 support holds. Above 1.2757 will target 1.2919 key near term resistance. We'd be cautious on strong resistance from there to limit upside. However, break of 1.2450 will argue that rebound from 1.2246 is completed and turn bias to the downside for this support.

In the bigger picture, the rebound from 1.2246 is mixing up the medium term outlook. Nonetheless, USD/CAD is staying below falling 55 week EMA (now at 1.2776), hence, the bearish case is in favor. That is, fall from 1.4689 is not completed yet. Sustained break of 1.2061 key support will carry larger bearish implication and target 61.8% retracement of 0.9406 to 1.4689 at 1.1424. However, firm break of 1.2919 will revive the case of medium term reversal and turn outlook bullish.

Canadian Dollar rebounds in early US session after stronger than expected inflation data. CPI rose 0.7% mom, 1.7% yoy in January. The annual rate slowed from 1.9% yoy in December but beat expectation of 1.5% yoy. CPI core common accelerated to 1.8% yoy, up from 1.6% yoy. CPI core median was unchanged at 1.9% yoy. CPI core trim slowed to 1.8% yoy, down from 1.9% yoy. Canadian Dollar is now trading as the strongest one for today, and reversed some of earlier losses and be mixed for the week. Elsewhere in the forex markets, Dollar remains the strongest one for the week, followed by Sterling. Kiwi and Aussie are the weakest ones.

UK Prime Minister Theresa May will set out her visions regard post Brexit relationship with EU in a speech next Friday. The announcement came after May and her senior cabinet members met at Chequers to hammer out the position. May's spokesman said that "It was a very positive meeting and a step forward, agreeing the basis of the prime minister's speech on the future relationship." A sticky point is the rights of EU nationals during the transition period. May's proposing of them having fewer rights than those already in the UK prompted furious response from EU. Another point is what kind of trade relationship would UK want to have.

BoE Deputy Governor Dave Ramsden said that productivity growth is weak currently but will improve over the coming years. He emphasized that will be a key factor for monetary policy. He pointed to MPC's view that economy's speed limit is likely to be around 1.5 percent." And, "with very little spare capacity in the economy, even the unusually weak actual growth of around 1.75 percent over the forecast ... is still sufficient to generate excess demand." Ramsden was one of the two MPC members who dissented last November's rate hike.

On the data front, Eurozone CPI was finalized at 1.3% yoy in January, CPI core at 1.0% yoy. German Q4 GDP growth was finalized at 0.6% qoq. New Zealand retail sales rose more than expected by 1.7% qoq in Q4. Japan national CPI core was unchanged at 0.9% yoy in January, corporate service price rose 0.7% yoy.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.2667; (P) 1.2709; (R1) 1.2748; More....

Breaching 1.2624 minor support suggests temporary topping at 1.2757. Intraday bias in USD/CAD is turned neutral first. Further rise will remain in favor as long as 1.2450 support holds. Above 1.2757 will target 1.2919 key near term resistance. We'd be cautious on strong resistance from there to limit upside. However, break of 1.2450 will argue that rebound from 1.2246 is completed and turn bias to the downside for this support.

In the bigger picture, the rebound from 1.2246 is mixing up the medium term outlook. Nonetheless, USD/CAD is staying below falling 55 week EMA (now at 1.2776), hence, the bearish case is in favor. That is, fall from 1.4689 is not completed yet. Sustained break of 1.2061 key support will carry larger bearish implication and target 61.8% retracement of 0.9406 to 1.4689 at 1.1424. However, firm break of 1.2919 will revive the case of medium term reversal and turn outlook bullish.

Economic Indicators Update

GBPUSD: The pair backed off lower prices to close higher on Thursday and was seen following through during Friday trading session. Support lies at the 1.3950 level where a break will turn attention to the 1.3900 level. Further down, support lies at the 1.3850 level. Below here will set the stage for more weakness towards the 1.3800 level. Conversely, resistance stands at the 1.4050 levels with a turn above here allowing more strength to build up towards the 1.4100 level. Further out, resistance resides at the 1.4150 level followed by the 1.4200 level. On the whole, GBPUSD looks to correct further higher on price halt.

Here are the latest developments in global markets:

FOREX: Euro/dollar was under pressure during early European trading, trading lower at 1.2302 (-0.22%) as uncertainties in the political front loomed in the background ahead of the Italian general election and the German's polls on whether Merkel's Conservatives will formally lead the government under a coalition agreement with their former coalition partners, the SPD. Pound/dollar jumped to an intra-day high of 1.3993 (+0.14%). on hopes that the Bank of England would raise interest rates faster than expected according to the BoE Chief Economist, Andy Haldane's hawkish comments on Wednesday. Euro/pound crawled down to 0.8818 (-0.18%). The dollar index eased to 89.89, while the dollar/yen edged down to 106.88 but both remained up on the day, gaining 0.18% and 0.14% respectively. January's FOMC meeting minutes released on Wednesday indicated that policymakers were sanguine on the US economic performance and that inflation will likely rise further, enhancing the dollar's strength. Aussie/dollar and kiwi/dollar extended their losses towards 0.7812 (-0.47%) and 0.7290 (-0.65%) respectively, being the worst performers among the majors. Dollar/loonie was flat at 1.2710 (+0.03%).

STOCKS: European stocks were steady in early European trading as the strong fluctuations in the market seemed to calm down, while a mixed flow of earnings releases restricted stock movements. The pan-European STOXX 600 was slightly up by 0.03% at 1015 GMT, with the French auto part maker Valeo being the biggest loser among the companies listed in the index as the firm's profits plummeted in the second half of 2017 due to higher material costs and adverse exchange rate movements. However, rising shares in the telecommunication sector were able to offset this loss. The blue-chip Euro STOXX 50 was down by 0.05% driven by weaker healthcare and technology sectors. The Spanish IBEX 35 fell by 0.42% dragged by consumer cyclicals, while the Italian FTSE MIB rose by 0.22% after Telecom Italia chose Goldman Sachs and Swiss Credit to deal with the spin-off of the company which has been an unsolved issue for almost a decade. The German DAX 30 inched up by 0.01% and the UK's FTSE 100 declined by 0.30%. US stock futures were in the green.

COMMODITIES: Oil prices were on the backfoot after the latest EIA report fueled concerns that OPEC's efforts to curb supply would get harmed by rises in US oil production. Particularly the EIA figures indicated that the US oil production hit a record high in monthly terms while the US oil exports jumped near to all-time highs. WTI crude declined by 0.66% to $62.39 per barrel and Brent retreated by 0.71% to $65.94/barrel. In precious metals, gold fell by 0.18% to $1329/ounce.

Day ahead: Canada releases inflation figures

At 1330 GMT, Canada will hand out data on consumer prices for the month of January, with analysts projecting the headline CPI to slip to 1.4% y/y after previously rising by 1.9%, holding within the Bank of Canada's target range of 1.0% – 3.0%. On the monthly basis, however, the gauge is expected to bounce by 0.4% following a decline by the same proportion in the preceding month. Measures of core inflation (that exclude volatility) preferred by the Bank of Canada, involving the trimmed-CPI, the median-CPI, and the common-CPI will be also in focus.

In oil markets, investors will be waiting for the Baker Hughes oil rig counts to give further clues on future US oil production at 1800 GMT. Note that, the number of active drilling rigs was rising the past four weeks, pressuring oil prices.

In terms of public speeches, the Bank of England's Deputy Governor, David Ramsden, will take part in a panel discussion on productivity and economic rebalancing at 1200 GMT. In the US, the New York Fed President, William Dudley (1515 GMT), the Boston Fed Governor, Eric Rosengren (1515 GMT), and the Cleveland Fed President, Loretta Mester (1830 GMT), will discuss on monetary policy before the 2018 US Monetary Policy Forum. The ECB board member, Benoit Coeure, will also join the event, giving a speech at 1830 GMT. Meanwhile, the president of the European Commission, Jean Claude Junker and the president of the European Council, Donald Tusk will be holding a news conference at 1700 GMT after the European Union heads of state and governments meet for an informal summit in Brussels.

In other areas of interest, Brexit news would attract attention the following days after the media reported that the UK Prime Minister, Theresa May backed those ministers who wanted the UK to take back control of its own regulations during yesterday's eight-hour meeting with the Cabinet. Next week, May will meet EU leaders, probably giving a clearer picture of the UK's stance over the country's partnership with the block.