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Canadian retail sales unexpectedly fell in August due to the biggest month-over-month drop in purchases of food and beverages in three-years.

Headline retail sales fell -0.3%. Market expectations were looking for a strong +0.5% gain. On a year-over-year basis, retail sales rose +6.9%.

Ex-autos, retail fell by a steep -0.7%.

The 'loonie' has taken it on the chin, as the 'big' dollar rallied immediately from just below the C$1.25 handle to touch C$1.2573, the first real resistance point for the dollar.

Stronger headline numbers would have improved the odds of the Bank of Canada (BoC) raising rates before the end of 2017. Today's print should take the BoC out of the rate hike equation for the time being. The BoC meet next Wednesday, Oct 25.

Canada inflation

Canada's annual inflation rate accelerated higher in September for a third consecutive month, supported by a surge in gas prices due to the impact of Hurricane Harvey stateside.

The headline CPI rose +1.6% y/y, following a +1.4% advance in the previous month. Market expectations were looking for a +1.7% advance. On a month-over-month basis, CPI rose +0.2%.

Note: Core inflation, edged upward to +1.6%, or an eight-month high.

Daily Pivots: (S1) 1.2458; (P) 1.2476; (R1) 1.2502; More....

USD/CAD rebound strongly in early US session. But it's still bounded in range below 1.2598. Intraday bias remains neutral first. On the upside, break of 1.2598 will extend the rebound from 1.2061 to 1.2777 resistance next. In case of another fall, downside should be contained by 38.2% retracement of 1.2061 to 1.2598 at 1.2393 to bring rally resumption.

In the bigger picture, USD/CAD should have defended 50% retracement of 0.9406 (2011 low) to 1.4869 (2016 high) at 1.2048. And with 1.2048 intact, we'd favor the case that fall from 1.4689 is a correction. Break of 1.2777 will further affirm this bullish case. That is, larger up trend from 0.9406 is not completed. And in that case, USD/CAD should target 1.3793 resistance next. However, on the other hand, firm break of 1.2048 will indicate that fall from 1.4689 is at least a medium term down trend and should target 61.8% retracement at 1.1424 and below.

Canadian Dollar weakens notably in early US session after a batch of disappointing data. Headline CPI rose 0.2% mom, 1.6% yoy in September, up from August's 0.1% mom 1.4% yoy. But that's below expectation of 0.4% mom, 1.7% yoy. CPI core-common was unchanged at 1.5% yoy. CPI core - trim edged higher to 1.5% yoy. CPI core median also edged higher to 1.8% yoy. Meanwhile, headline retail sales dropped -0.3% mom in August, way below expectation of 0.4% growth. Ex-auto sales was even worse and dropped -0.7% mom, versus consensus of 0.3% mom. BoC will be meeting next week and there is practically no change for a rate hike from current 1.00%. USD/CAD is staying in range of 1.2432/2598 at the time of writing. Near term outlook remains bearish as rebound from 1.2061 should resume through 1.2598 sooner or later.

Sterling rebound on Brexit progress

Sterling rebounds strongly today on positive news out of Prime Minister Theresa May's appearance in the EU summit. May pledged to examine the Brexit bill line by line and UK could be willing to pay more than EUR 20B. And she doesn't dismiss the number of EUR 60b, which is believed to be what EU is asking for. Meanwhile, European Council President Donald Tusk said that the reports of the "deadlock" between EU and UK "have been exaggerated'. Tusk added that while progress was "not sufficient" to start trade talks, that "doesn't mean there is no progress at all".

Released from UK, public sector net borrowing rose to GBP 5.3B in September.

Euro firm as markets eyes next week's ECB

Euro has been very resilient this week in spite of the political uncertainties in Catalonia. The common currency could end as the second strongest major currency, after dollar. Markets are keenly awaiting next week's ECB monetary policy decision. ECB Governing Council Member Ewald Nowotny said today that the central bank will likely decide to cut down on its monthly asset purchase target next week. He noted that "the question will be whether the programme should be continued at the current intensity or whether hitting the brakes is called for". Though, he noted that "it would be dangerous to abruptly slam on the brake", but ECB "will slowly take its foot of the gas". It's speculated that ECB would cut the EUR 60B a month purchase by half to EUR 30B, or ever by two-thirds to EUR 20B.

Released from Eurozone, current account surplus widened to EUR 33.3B in August. Germany PPI rose 0.3% mom 3.1% yoy in September, above expectation of 0.1% mom 2.9% yoy.

Dollar to end as the strongest one on tax hope

Dollar is set to ended the week as the strongest one, after a wild ride. The greenback was boosted by news that US President Donald Trump and Republicans have moved a big step forward on tax reforms. Republican-dominated Senate narrowly approved a budget blueprint for the next fiscal year, yesterday. Republicans could now pass legislation reform the tax plan without the need for help from Democrats. And more importantly, the voting some how showed unity among Republicans. Even Senator Bob Corker, who's in feud with President Donald Trump, voted the for the budget. Technically, dollar is mildly bullish against Swiss Franc and Yen. But it's sort of neutral against Euro and Sterling.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.2458; (P) 1.2476; (R1) 1.2502; More....

USD/CAD rebound strongly in early US session. But it's still bounded in range below 1.2598. Intraday bias remains neutral first. On the upside, break of 1.2598 will extend the rebound from 1.2061 to 1.2777 resistance next. In case of another fall, downside should be contained by 38.2% retracement of 1.2061 to 1.2598 at 1.2393 to bring rally resumption.

In the bigger picture, USD/CAD should have defended 50% retracement of 0.9406 (2011 low) to 1.4869 (2016 high) at 1.2048. And with 1.2048 intact, we'd favor the case that fall from 1.4689 is a correction. Break of 1.2777 will further affirm this bullish case. That is, larger up trend from 0.9406 is not completed. And in that case, USD/CAD should target 1.3793 resistance next. However, on the other hand, firm break of 1.2048 will indicate that fall from 1.4689 is at least a medium term down trend and should target 61.8% retracement at 1.1424 and below.

Economic Indicators Update

The Brent Oil dropped and resumed the yesterday's bearish candle and seems poised to reach fresh new lows in the upcoming days. Technically, it should start a larger drop after another false breakout and after the failure to reach the 59.50 previous high. Right now we still need a confirmation that we'll have another leg down because is still trapped above some important dynamic support levels.

Price drops also because the Cable has lost some ground versus the greenback, remains to see what will happen in the upcoming hours as the Canadian data should bring some action. The figures should shake the USD/CAD and most likely will have an impact on the Brent as well. Personally, I believe that only the fundamental factors could force the rate to turn to the upside again.

Price plunged since yesterday and erases the latest gains, signaling that the bulls are too exhausted and that we have an overbought situation. I've said in the yesterday's daily report that a larger drop will come if the rate will close below the median line (ML) of the major ascending pitchfork and if will retest this level. Brent dropped without a retest, actually has tried to come back above the ML in the morning, but failed to stay there.

It is trading above the 57.00 psychological level because has squeezed a little in the last hours, the next downside target will be at the 250% Fibonacci line (descending dotted line). Price could retest the upper median line (uml) of the minor descending pitchfork before will drop towards the next downside targets.

Price dropped after the retest of the first warning line (WL1) of the major ascending pitchfork. The downside was paused by the strong support area near the 50% Fibonacci retracement. Only a valid brekdown below the 50% level will announce a further drop. A USDX's breakout above the 93.81 static resistance will send it towards the $1248 per ounce.

Price dropped today as the USD has taken the lead again on the short term. AUD/USD erased the yesterday's gains, but failed to reach the 38.2% retracement level. I've said in the last reports that technically, is expected to climb towards the upper median line (uml) of the minor blue descending pitchfork. I've drawn a minor red ascending pitchfork hoping that I'll catch an upside movement, price could come to retest the lower median line (lml). A valid breakout from the ascending pitchfork's body will signal a further drop on the daily chart.

Global equity bulls were missing in action on Thursday, after weaker corporate earnings, soft economic data from China and heightened political drama in Spain encouraged investors to head to the sidelines.

Interestingly, Asian shares concluded higher on Friday amid confidence over the global economy, while European stocks found support in the form of the US Senate passing a budget proposal – a big step for tax reforms. With the renewed sense of optimism over Donald Trump's tax reforms stimulating investor appetite for riskier assets, Wall Street could receive a boost this afternoon.

Dollar rallies on tax reform optimism

The dollar was king today, following reports of the US Senate passing a budget blueprint, which was an important step for Republicans to push ahead with tax reforms.

With the Senate voting 51-49 late on Thursday to the pass the bill, it appears that Trump's hopes of moving forward with the planned $1.5 trillion tax-cut package, are gaining traction.

While Dollar bulls may benefit from the renewed sense of optimism over Trump's tax reforms, some headwinds could come in the form of uncertainty over who the next chair of the Federal Reserve will be. With markets speculating that Trump may appoint Jerome Powell, who is seen as a dove, to become the next Fed head, bears could make an unwelcome appearance. It should be kept in mind that a dovish Fed Chair has the ability to weigh on the prospects of higher US interest rates in 2018, consequently pressuring the dollar.

Sterling punished by a BoE dove

Sterling extended losses against the Dollar on Friday morning, after dovish comments from Bank of England Deputy Governor Jon Cunliffe, prompted investors to reassess the likelihood of a rate hike in November.

After Cunliffe stated on Thursday that there was no clear case for a rate hike in the near future, speculation is now mounting that two of the central bank's nine policy makers will not be voting for a rate hike in November. The fact that Sterling sharply depreciated following Cunliffe's comments, continues to highlight how the currency has become increasingly sensitive to monetary policy speculation.

Theresa May has admitted for the first time that Brexit talks have been in "difficulty", which is likely to punish Sterling further. With political risk at home, weak economic fundamentals and Brexit uncertainty all weighing heavily on Sterling, further downside is on the cards. Even if the Bank of England raises interest rates in November as is widely expected, in an effort to limit inflation, this may not be enough to heal the bruised buying sentiment towards Sterling.

From a technical standpoint, the GBPUSD has broken below the 1.3150 which may encourage a decline towards 1.3050.

Commodity spotlight – Gold

This has certainly been another interesting week for Gold, which has tumbled more than 1.7% after closing above the $1300 level last week. The metal has steadily depreciated in recent days, despite geopolitical tensions and political uncertainty supporting the flight to safety. There is a suspicion that the culprit behind Gold's selloff may be renewed optimism over Donald Trump's tax reforms. With the US Senate voting for new budget measures on Thursday, the possibility that proposed tax reforms will be passed has increased. This will likely boost the dollar, consequently pressuring Gold. From a technical standpoint, the yellow metal remains pressured below the $1300 level. Sustained weakness under $1280 may open a path towards $1267.

Let's not forget about Bitcoin…

Could everybody's favorite cryptocurrency be gearing up for another incredible appreciation, that pushes it above $6000?

With politicians, central banks and leading investment banks all showing a keen interest in Bitcoin, bulls are supported and can make another move at any moment. Taking a look at the technical picture, Bitcoin experienced a sharp decline on Wednesday, with prices almost hitting $5100 before losses were aggressively clawed back. This cryptocurrency continues to display its resilience on repeated occasions, with a solid breakout above the $5850 level paving a path towards $6000.

GBPUSD: The With a temporary bottom seen, we may see further recovery higher. Support lies at the 1.3150 level where a break will turn attention to the 1.3100 level. Further down, support lies at the 1.3050 level. Below here will set the stage for more weakness towards the 1.3000 level. Conversely, resistance stands at the 1.3200 levels with a turn above here allowing more strength to build up towards the 1.3250 level. Further out, resistance resides at the 1.3300 level followed by the 1.3350 level. On the whole, GBPUSD continues to face further downside pressure but with caution of a recovery.

The U.S dollar has moved to its highest trading level against the Japanese Yen in over three-months, hitting 113.47 during the European trading session, as the U.S dollar index continues to push higher. The USDJPY pair is currently trading around the 111.38 level, as traders await U.S economic data and the latest opinion polls from this weekend's snap Japanese election.

Intraday buying interest in the USDJPY pair is likely to accelerate above the 113.47 level, with price-action likely to test towards the key 113.57 and 113.90 technical resistance levels.

If sellers push price-action below the key 113.20 level, the USDJPY pair is likely to see a further decline back towards the 112.89 region. Extended intraday technical support is located at 112.58 and 111.89.

The euro currency has pulled back towards the 1.1800 level against the U.S dollar, after earlier trading as high as 1.1857. A move lower in European stocks and a stronger U.S dollar index have contributed to the EURUSD shedding intraday gains. Price-action currently trades around the 1.1809 level, as traders await key housing data from the U.S economy.

The EURUSD pair retains a bullish intraday trading bias while holding price above the key 1.1800 level. Further upside towards 1.1816 and 1.1833 can be expected while the bullish tone continues. Extended resistance is found at 1.1857 and 1.1875.

If intraday EURUSD sellers push price-action below the key 1.1800 level, further declines towards 1.1790 and 1.1770 should be expected. Extended intraday support is found at 1.1755 and 1.1730.