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Canadian Dollar Drags Down By Oil Price Fall, Dollar Shows Some Firmness

Movements in the forex markets are rather limited in European session, with some firmness seen in Dollar and Sterling. One focus is on the selloff in Canadian Dollar, which is dragged down by the steep decline in oil prices. Euro’s mild weakness is also worth a note, as partly weighed down by German sentiment data. Sterling’s rebound doesn’t warrant some sustainable moves yet. EU chief Brexit negotiator Michel Barnier will be in London today and stay until Wednesday for another rounds of talks. We’ll see if any results could be achieved this time.

Technically, USD/JPY and USD/CAD could be worth some attention today. Break of 105.03 minor resistance in USD/JPY would erase imminent downside breakout risk and suggest that consolidation from 104.00 is extending with another up leg. Similarly, break of 1.3259 minor resistance in USD/CAD will suggest that consolidation from 1.2994 is extending with another up leg too. These wouldn’t be strong signs of bullish reversal of Dollar. But at least, they could indicate Dollar’s selloff last week as past its climax.

In Europe, currently, FTSE is down -0.41%. DAX is down -2.66%. CAC is down -1.02%. German 10-year yield is up 0.004 at -0.567. Earlier in Asia, Nikkei dropped -0.09%. Hong Kong HSI rose 0.54%. China Shanghai SSE dropped -0.82%. Singapore Strait Times dropped -0.55%. Japan 10-year JGB yield dropped -0.0044 to 0.035.

Bundesbank: German economy recovery likely to continue in Q4, albeit a much slower pace

Bundesbank said economic output in Germany is “likely to have increased sharply” in Q3. In terms of quarterly GDP, the economy “could have made up for a little more than half of the drastic slump” in 1H. But it’s still around -5% below pre-crisis level at Q4 2019. From today’s perspective, “the economy recovery is likely to continue in the current quarter, albeit at a much slower pace”.

Industry “caught up remarkably” with mood improving. But That for service companies was “clouded a little”, affected by recent sharp rise in coronavirus infections and containment measures. The “slight recovery” on the labor market “has recently continued”. Consumer prices fell slightly and will fall significantly below previous year’s level “due to the lower oil prices and base effects”.

Germany Ifo business climate dropped to 92.7, first decline after five months of rises

Germany Ifo Business Climate dropped slightly to 92.7 in October, down from 93.2, matched expectations. That’s the first decline after five consecutive rises. Current Assessment rose to 90.3, up from 89.2, beat expectation of 89.7. Expectations Index dropped to 95.0, down form 97.4, missed expectation of 96.0.

Ifo President Clemens Fuest said: “Companies are considerably more skeptical regarding developments over the coming months. In contrast, they gave a slightly more positive assessment of their current situation than last month. In view of rising infection numbers, German business is becoming increasingly worried.”

Looking at some details, manufacturing rose from -.5 to 1.6. That’s the first positive reading since June 2019. Services dropped from 6.9 to 3.9. Trade dropped from 0.3 to -0.1. Construction also dropped from 3.3 to 0.8.

WTI dives on demand concerns, extending the correction back to 35.98 first

While the forex markets are relatively steady today, oil price is suffering steep decline in the early part of European session. Demand concern is seen as a reason for the sell-off. The US reported its highest number of new coronavirus infections in the two days through Saturday. Numbers in Europe are also making record runs. The resurgence comes at a rather bad time when the Northern Hemisphere is now entering into winter.

WTI crude oil’s decline is accelerating lower as seen in 4 hour MACD, with break of its trend line. The development now argues that price actions from 35.98 are a consolidation pattern completed with three waves to 41.62. That is, medium term correction from 43.50 is extending with another falling leg. Deeper fall would be seen, possibly through 35.98 low to 100% projection of 43.50 to 35.98 from 41.62 at 34.10. We’d expect strong support from there, which is close to 34.36 support to bring rebound. Meanwhile, near term downside risk will be erased if WTI could reclaim 40 handle.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.3103; (P) 1.3132; (R1) 1.3153; More….

USD/CAD’s recovery from 1.3081 extends higher today but stays below 1.3259 resistance. Intraday bias remains neutral first. On the downside, break of 1.3081 will target a test on 1.2994 low. Break will resume the larger fall from 1.4667. However, break of 1.3259 resistance will extend the consolidation pattern from 1.2994 with another rising leg. Intraday bias will be turned back to the upside for 1.3418 instead.

In the bigger picture, fall from 1.4667 is seen as the third leg of the corrective pattern from 1.4689 (2016 high). Sustained break of 61.8% retracement of 1.2061 to 1.4667 at 1.3056 will target a test on 1.2061 (2017 low). But we’d expect loss of downside momentum as it approaches this key support. On the upside, firm break of 1.3715 resistance will argue that this falling leg has completed and turn focus back to 1.4667/89 resistance zone.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:50 JPY Corporate Service Price Index Y/Y Sep 1.30% 1.00% 1.00% 1.10%
9:00 EUR Germany IFO Business Climate Oct 92.7 92.7 93.4 93.2
9:00 EUR Germany IFO Current Assessment Oct 90.3 89.7 89.2
9:00 EUR Germany IFO Expectations Oct 95 96 97.7 97.4
14:00 USD New Home Sales Sep 1025K 1011K

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