Sample Category Title

• The Canadian economy continued to move forward in April, growing by 0.2% month-on-month on the back of expansion in service-producing industries.
• The breadth of growth remained fairly strong, as 14 of the 20 major industries (representing roughly 76% of output) saw growth.
• A mixed performance was turned in on the goods-producing side of the economy. Mining, quarrying and oil &gas saw a 1.2% expansion, helped by strong growth in drilling and rigging services that more than offset weakness in the oil and gas extraction subsector, stemming from issues at the Mildred Lake oil facility. Growth was flat to slightly up elsewhere, except among manufacturers, where output fell 0.9% in April nearly reversing the 1.0% climb in March. The decline within subsectors was fairly widespread, as both durable and non-durable manufacturing output contracted in April.
• For the service-producing side of the economy it was another solid month, as output rose 0.3%. Tearing out of the gate was arts, entertainment, and recreation, helped by the presence of five Canadian teams in this year's NHL playoffs. Other notable gainers were for accommodation and food services (+1.1%), transportation (+1.0%), retail trade, wholesale trade, and professional services (all +0.5% m/m in April).

Key Implications

• The Canadian economy kicked the second quarter off on a decent footing, posting its sixth straight monthly expansion. With Canada Day tomorrow, it is perhaps worth noting that at least part of the gain can be attributed to five Canadian teams making the NHL playoffs this year, a welcome departure from the 2016 performance. Beyond the impact of hockey however, was a still solid economy that continues to see growth across a wide swath of industries, and which looks set to meet our expectations of 2.9% growth (q/q SAAR) for Q2.
• With another quarter of solid economic growth looking likely, Canada has clearly put the worst of the 2014/15 oil price shock behind it. Consequently, all eyes are now on the Bank of Canada's monetary policy, with the overnight target currently at an emergency level of 0.50%. Recent communications have struck a markedly hawkish tone, suggesting that it is no longer a matter of *if* monetary stimulus will be removed this year, but rather *when*.
• As it stands, we remain of the view that the first Bank of Canada interest rate increase in more than seven years will take place this fall, likely in October. While markets have placed good odds on an increase at the Bank's July 12th meeting, we believe that the value of waiting until October in terms of additional clarity around oil prices, housing markets, and inflationary pressures outweighs the marginal impact that hiking three months earlier would have on inflation one to two years from now.
• That said, this is not a cut and dry case, and a July hike can easily be justified given the forward-looking nature of monetary policy. Certain to inform the Bank of Canada's thinking (and ours) will be the forward-looking components of the latest Business Outlook Survey, due for release today at 10:30AM ET.

• Personal income rose 0.4% in May, slightly ahead of consensus expectations for a 0.3% gain. Removing taxes and price changes, real disposable personal income was up a robust 0.6% in the month.
• Personal spending was softer, rising just 0.1%, in line with the consensus. In real terms, personal spending was also up 0.1%, led by a 0.2% increase in non-durable goods. Durable goods spending edged down 0.1%, while services spending inched ahead 0.1%.
• Consumer prices fell 0.1% (month-on-month) in May, bringing the year-on-year inflation rate to just 1.4% (from 1.7% in April). Core prices (excluding food & energy) also rose 0.1% month-on-month – bringing year-on-year core price growth to 1.4% (from 1.5% previously).
• The personal saving rate jumped to 5.5% from a downwardly revised 5.1% in April.

Key Implications

• Spending was a touch soft in May, but follows two months of solid gains. For the quarter, we are still tracking 3% (annualized) growth, marking a return to form for consumer spending growth and lifting overall economic growth back above trend.
• The upside of weak inflation is strong real income growth. Real disposable personal income has risen a whopping 4.7% (annualized) over the past three months, the strongest growth in nearly two years. This should continue to underpin healthy consumer spending through the second half of the year.
• The Federal Reserve lowered its outlook for inflation in 2017 in its last Summary of Economic Projections in June. Even this relatively quiescent forecast is at risk of underperforming given the continued deceleration in inflation. While global central banks have turned increasingly hawkish in recent weeks, ongoing misses on the inflation front remain the main risk to the pace of monetary policy normalization.

Highlights:

• Canadian GDP rose by an on-consensus 0.2% in April to build on a 0.5% gain in March.
• Goods-producing industries were flat while services activity rose 0.3%.
• Growth was broadly-based: 14 of 20 subsectors grew in April and 17 of 20 saw higher output relative to a year ago.
• A fire-related shutdown at an oil sands producer weighed on oil and gas extraction in April. An 11% increase in support activities for mining, oil and gas offset that decline.
• Arts, entertainment and recreation jumped 2.8% thanks to five of seven Canadian NHL teams making the playoffs.
• Manufacturing disappointed with a 0.9% decline in April. The earlier-released manufacturing sales data showed volumes rose 0.5% in the month. Output in the sector was still up 2% year-over-year.

Our Take:

Canadian GDP posted a solid 0.2% increase in April and there was further evidence of broadening growth across sectors which has been a significant factor in the Bank of Canada's recently rosier take on the economy. Decent momentum to start Q2 fits with our forecast for 2.7% growth in the quarter. That would be consistent with recent comments from BoC Governor Poloz that growth likely moderated relative to Q1's 3.7% pace but remained above trend. There was also further evidence of recovery in the energy sector, supporting the bank's contention that adjustment to lower oil prices is largely complete. Overall, today's GDP report is consistent with the Bank of Canada's recent narrative that broadly-based growth is steadily eroding excess capacity in the economy and that 2015's rate cuts have "done their job." The bank's more hawkish tone has markets pricing in about 70% odds of a rate hike as soon as July. April's GDP, if matched by an upbeat Business Outlook Survey later this morning, should reinforce market expectations.

Daily Pivots: (S1) 1.1394; (P) 1.1419 (R1) 1.1465; More.....

A temporary top is in place at EUR/USD with 4 hour MACD crossed below signal line. Intraday bias is turned neutral for consolidation. Downside of retreat should be contained by 1.1291 minor support to bring rise resumption. Break of 1.1444 will extend the larger up trend from 1.0339 to 1.1615 medium term resistance next.

In the bigger picture, the break of 1.1298 resistance further affirm medium term reversal. That is an important bottom was formed at 1.0339 on bullish convergence condition is seen in weekly MACD. Further rise would be seen to 55 month EMA (now at 1.1776). Sustained break there will pave the way to 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 next. This will now remain the favored case as long as 1.1118 support holds.

Daily Pivots: (S1) 0.9542; (P) 0.9571; (R1) 0.9586; More.....

A temporary low is in place at 0.9551 with 4 hour MACD crossed above signal line. Intraday bias is turned neutral for consolidation. Upside of recovery should be limited below 0.9770 resistance and bring another decline. Below 0.9551 will target 0.9548 support and below. We'd start to look for bottoming signal again as it approaches 0.9443 key support level.

In the bigger picture, USD/CHF is still bounded in medium term range of 0.9443/1.0342 for the moment. Consolidative trading would likely continue and medium term outlook remains neutral. Break of 1.0342 key resistance is needed to confirm underlying bullish momentum in the pair. Meanwhile, downside attempts should be contained by 0.9443 key support level. However, sustained break of 0.9443 will carry larger bearish implication and target 0.9 handle.

Daily Pivots: (S1) 111.67; (P) 112.29; (R1) 112.79; More...

Intraday bias in USD/JPY remains neutral for consolidation below 112.91 temporary top. Near term outlook stays cautiously bullish as long as 110.94 support holds. Sustained break of the near term channel resistance argue that whole pull back from 118.65 has completed at 108.12 already. In such case, further rise should be seen to 114.36 resistance for confirmation. However, break of 110.94 will argue that rebound from 108.81 has completed and will turn bias back to the downside for this support instead.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. It's uncertain whether it's completed yet. But in case of another fall, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Overall, rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

Daily Pivots: (S1) 1.2947; (P) 1.2978; (R1) 1.3036; More...

A temporary top is in place at 1.3029 as GBP/USD lost upside moment, with 4 hour MACD crossed below signal line. Intraday bias is turned neutral for some consolidations. Downside of retreat should be contained by 1.2849 support to bring another rally. Above 1.3029 will target 1.3047 resistance first. Break of 1.3047 will target 61.8% projection of 1.2108 to 1.3047 from 1.2588 at 1.3168.

In the bigger picture, overall, price actions from 1.1946 medium term low are seen as a corrective pattern. Pull back from 1.3047 has completed after failing to sustain below 1.2614 resistance turned support. It argues that the corrective pattern from 1.1946 is still in progress for another high above 1.3047. But still, outlook remains bearish as long as 1.3444 key resistance holds. Larger down trend from 1.7190 is expected to resume later after the correction completes.

The forex markets are turning into profit taking consolidation mode as the half year end approaches. News from Eurozone are generally positive but the common currency pares back some of this week's sharp gain against Dollar and Yen. One the other hand, Canadian Dollar is still working hard to break through 1.3 handle against Dollar, following the rebound in oil prices. The Loonie is set to end June as the strongest one, followed by Aussie and than Kiwi. While Sterling surges this week on hawkish BoE turn, it's yet to recover the post UK election lost and would end as the third weakest one for the month, following Dollar and then Yen.

St Louis Fed Bullard: Fed can afford to wait and see

St Louis Fed President James Bullard said today that "the Fed can afford to wait and see what comes out of the political process". He acknowledged that some of US President Donald Trump's policies can provide growth but emphasized that "they've got to get them through Congress". Meanwhile, he noted that "the data has not been that great considering that we got going on this three hike process in December, March and June". And added that "you'd like to make a move like that on the back of pretty strong data for the U.S. economy but the consumption number was not that great."

Released in US session, US personal income rose 0.4% in May, above expectation of 0.3%. Personal spending rose 0.1%, in line with consensus. Headline PCE slowed to 1.4% yoy, below expectation of 1.5% yoy. Core PCE slowed to 1.4% yoy, meeting expectation. From Canada, GDP rose 0.2% mom in April, same as forecast. IPPI dropped -0.2% mom in May while RMPI dropped -1.8% mom.

ECB Lautenschlaeger: Should prepare for stimulus exit

ECB Governing Council member Sabine Lautenschlaeger said today that "although inflation is not yet on a stable path towards our objective, all the conditions are in place. And it's "just a question of time and patience" for ECB to remove policy accommodations. She urged that "this is why monetary policy should already be making preparations of a return to normal stance. And it should adapt its communications accordingly".

In Eurozone, headline CPI flash slowed to 1.3% yoy in June, down from 1.4% yoy but beat expectation of 1.2% yoy. Core CPI, however, jumped to 1.2% yoy, up from 0.9% yoy, and beat expectation of 1.0% yoy. German Retail sales rose 0.5% mom in May, above expectation of 0.3% mom. German unemployment rose 7k in June, worse than expectation of -10k fall. Unemployment rate was unchanged at 5.7%.

Also from Europe,UK GDP growth was finalized at 2.0% oy in Q1, unrevised. Index of services rose 0.2% 3mo3m in April. UK Gfk consumer sentiment dropped to -10 in June. Swiss KOF leading indicator rose to 105.5 in June.

BoJ JGB buying hit lowest since 2014

In Japan, BoJ bought only JPY 24.4T of JGBs in the three months to June, down from JPY 27.1T in the previous quarter. That's also the smallest amount since July-September quarter of 2014, when BoJ bought JPY 19.0%. Formally, BoJ is still aiming to buy JPY 80T of assets annually. But the figure may changed based on its "yield curve control" framework.

Released from Japan, national CPI core rose to 0.4% yoy in May, up from 0.3% yoy and met expectations. But that's still way off BoJ's 2% target. Tokyo CPI core, on the other hand, dropped to 0.0% yoy in June, down from 0.1% yoy and missed expectation of 0.2% yoy. Also from Japan, unemployment rate rose to 3.1% in May, household spending dropped -0.1% yoy, industrial production dropped -3.3% mom, housing starts dropped -0.3% yoy.

Staying in Asia pacific, New Zealand building permits rose 7.0% mom in May. China official PMI manufacturing rose to 51.7 in June. Non-manufacturing PMI rose to 54.9.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2947; (P) 1.2978; (R1) 1.3036; More...

A temporary top is in place at 1.3029 as GBP/USD lost upside moment, with 4 hour MACD crossed below signal line. Intraday bias is turned neutral for some consolidations. Downside of retreat should be contained by 1.2849 support to bring another rally. Above 1.3029 will target 1.3047 resistance first. Break of 1.3047 will target 61.8% projection of 1.2108 to 1.3047 from 1.2588 at 1.3168.

In the bigger picture, overall, price actions from 1.1946 medium term low are seen as a corrective pattern. Pull back from 1.3047 has completed after failing to sustain below 1.2614 resistance turned support. It argues that the corrective pattern from 1.1946 is still in progress for another high above 1.3047. But still, outlook remains bearish as long as 1.3444 key resistance holds. Larger down trend from 1.7190 is expected to resume later after the correction completes.

Economic Indicators Update

EUR/GBP - 0.8799

 
Recent wave: Major double three (A)-(B)-(C)-(X)-(A)-(B)-(C) is unfolding and 2nd (A) has possibly ended at 0.6936.

Trend: Near term up

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

 
Euro’s retreat after brief rise to 0.8882 earlier this week suggests a temporary top is possibly formed there and few days of consolidation would be seen with mild downside bias for a test of indicated support at 0.8763, break there would add credence to this view, bring retracement of recent upmove to 0.8730-35, however, still reckon downside would be limited to 0.8719 support.

In view of this, would be prudent to stand aside for now and look to turn short on recovery as 0.8840-50 should limit upside. Above 0.8882 would revive bullishness and extend recent upmove from 0.8304 low to 0.8900-10, having said that, as broad outlook remains consolidative, reckon current c leg of larger degree wave b should be limited to 0.8950 and price should falter well below 0.9000 psychological level.

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

USD/CAD - 1.2986

 
Recent wave: Only wave v of c has ended at 0.9407 and wave C of major A-B-C correction is underway for headway to 1.4700

Trend:  Near term down

 
Original strategy       :

Sell at 1.3150, Target: 1.2980, Stop: 1.3210

Position: -

Target:  -

Stop: -

 
New strategy             :

Sell at 1.3115, Target: 1.2915, Stop: 1.3175

Position: -

Target:  -

Stop:-

As the greenback has recovered after falling to 1.2946 today, suggesting minor consolidation would be seen and corrective bounce to 1.3045-50 and possibly 1.3080 is likely, however, reckon 1.3115-20 would limit upside and bring another decline later, below said support would extend the fall from 1.3794 top (wave c of larger degree wave b top) to 1.2920, however, near term oversold condition should limit downside to 1.2900 and reckon 1.2870 would hold from here, risk from there has increased for a rebound later.

In view of this, would not chase this fall here and would be prudent to sell the pair again on recovery as 1.3115-20 should limit upside. Above 1.3160-70 would defer and suggest low is formed, bring a stronger rebound to 1.3215-20 and possibly towards 1.3260-65 but only break there would abort and signal a temporary low is formed instead, then test of resistance at 1.3308 would follow.

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.