Federal Reserve's George is crossing the wires.
- Downside risks to the economy primarily from trade uncertainty, slowing global growth.
- Expects to see continued econ. growth around trend.
- Trade, tariffs & world growth pose risks to outlook.
- Prepared to adjust view of appropriate monetary plicy if downside risks materialize.
- Not seeing much price pressure being generated by unemployment.
- Natural unemployment rate ‘could be lower’.
The Federal Reserve's Beige Book has stated that the economic activity continued to expand at a modest pace overall from mid-May through early July, with little change from the prior reporting period.
In most Districts, sales of retail goods increased slightly overall, although vehicle sales were flat. Activity in the nonfinancial services sector rose further. Tourism activity was broadly solid, with Atlanta and Richmond recording robust growth in this sector. Although some Districts continued to report healthy expansion in the transportation sector, others noted that activity declined modestly. On balance, home sales picked up somewhat, but residential construction activity was flat. Nonresidential construction activity increased or remained strong in most reporting Districts, and commercial rents rose. Manufacturing production was generally flat, but a few Districts noted a modest pickup in activity since the last reporting period. Agricultural output declined modestly following unusually heavy rainfall in some areas, and oil and gas production fell somewhat. Increased demand for loans was broad-based, with all but two Districts noting some growth in financing activity. The outlook generally was positive for the coming months, with expectations of continued modest growth, despite widespread concerns about the possible negative impact of trade-related uncertainty.
- Oil is sharply down for the second consecutive day.
- The level to beat for bears are seen at 56.40 and 56.00
Oil daily chart
WTI (West Texas Intermediate) is declining sharply below $58.00 a barrel and its main daily simple moving averages (DSMAs).
Oil 4-hour chart
The market is trading below 57.00 and the 50 and 100 SMAs. Bears likley intend to drive the market towards the 56.40 and 56.00 supports.
Oil 30-minute chart
Oil is trading below its main SMAs suggesting bearish momentum in the near term. Immediate resistancess are seen at 57.00, 57.40 and 58.50.
Additional key levels
- EUR/JPY is currently trading at 121.31, travelling between a tight range of 121.19 and 121.48.
- EUR/JPY is basing on a technical basis albeit pressured by a series of lower tops.
EUR/JPY has been under pressure since July 11th but has made a series of higher lows in the near term. Risk appetite is slightly lower today as markets weigh up the outlook in what appears to b a new easing cycle at the central banks, with much-depending on this month Federal Reserve outcome.
Stocks have been in consolidation this week but today's European stock indices have closed lower with the German DAX, -0.72%. As for data, the soft European June car sales figures highlighted the downside risk to the eurozone growth outlook, particularly in light of the openness of the eurozone economy and its exposure to car exports.
Analysts at Commerzbank explained that EUR/JPY has started to erode the 2019 uptrend line at 121.42 and the 120.79 June low, is exposed:
"A negative bias will remain entrenched while we are below the 55-day moving average and the 3-month downtrend at 122.34/42. It should head to the 119.91 78.6% Fibonacci retracement. This is the last defence for the 117.85 January spike low. Resistance is offered initially by the 55-day ma and downtrend at 122.34/42 and then 123.34/75 May 21, June and current July highs."
- Yellow metal gains on economic outlook worries and lower US yields.
- XAU/USD holds above $1420, near the highest daily close since 2013.
Gold continued to rally and printed a fresh 6-day high at $1424 and then pulled back modestly. As of writing, trades at $1421, up to $15 for the day and more than $20 above the daily lows.
The move higher took place amid a decline in US yields and also on lower equity prices on Wall Street. Crude oil prices turned negative, adding to yesterday’s losses. Overall, the decline in global yields continues to be a key support to gold prices. The anticipation of more stimulus from the Federal Reserve and the European Central Bank is pushing bond yields to the downside.
XAU/USD continues to move in a consolidation range, holding above the 20-day moving average and testing at the moment the upper limited. A daily close above $1425 would be the highest since 2013 and would point to more gains. While a retreat from current levels could find support at $1400/05 (psychological / 20-day moving average); below the decline is likely to extend to $1385.
- AUD/USD is currently trading at 0.7022 between a range of 0.6996 and 0.7024.
- AUD/USD stalling in the July recovery at prior resistance.
AUD/USD is held up in its advance as markets dial down the prospects of deeper Federal Reserve cuts. The Fed seems most likely to cut rates once by 25bp in 2019 and then leave rates on hold through 2020 rather than embarking on a series of rate cuts.
There have been three rate cuts priced into futures markets by end-2019 which would entail the Fed undoing nearly all of the tightening enacted in 2018, which now seems quite unlikely unless the US economy slows down much more sharply than we (and the Fed) currently anticipate. Data of late has supported a less dovish bias.
The focus in the immediate future, eyes now turns back to the Australian economy and jobs data. "We anticipate some give back in June from May's election driven boost to employment. We forecast +5k for headline Jun employment, the participation rate to remain at 66% and the unemployment rate to remain at 5.2%. The risk is for the unemployment rate to edge higher should more people be looking for work," analysts at TD Securities explained.
On a technical basis, AUD/USD is approaching a very tough band of resistance, namely 0.7048/91, noted analysts at Commerzbank:
"This is the May high and the July high so far, the 200-day ma and the downtrend. It is likely to hold the initial test and we note the 13 counts on the intraday charts, we would allow for failure here and a near term slide lower. Further up resistance can be spotted at the 0.7207 February high. The 0.6911 10th July low guards underlying support at 0.6865 the 17th May low and the mid June low at 0.6832."
- USD/CAD is trading close to multi-month lows.
- On a recovery scenario, the levels to beat for bulls are at 1.3050 and 1.3080/1.3100.
USD/CAD daily chart
USD/CAD is under pressure near multi-month lows as the market is trading below 1.3100 and the main daily simple moving averages (DSMAs).
USD/CAD 4-hour chart
The market is declining below its main SMAs as bears are trying to reach 1.3016 support If broken, further down lies 1.2770, according to the Technical Confluences Indicator.
USD/CAD 30-minute chart
The market is trading withing the ranfge of the last four days. Bulls have a lot of work as they have to overcome 1.3050 and the main SMAs. If the bulls can overcome 1.3050, the next resistances can become 1.3080, 1.3100 and 1.3150, according to the Technical Confluences Indicator.
Additional key levels
The EUR/USD pair rose modestly during the American session and printed a fresh daily high at 1.1233. It is hovering near the top, recovering half of yesterday’s losses.
A weaker US Dollar boosted the pair to the upside. A decline in US yields pushed the greenback to the downside. The 10-year stands at 2.07%, the lowest since July 11 while the DXY is down 0.22%.
Data from the US today showed a decline in US housing starts and also in building permits to the lowest in two years. Housing starts fell 0.9% in June to a annual rate of 1.253 million units, below the 1.261 million expected. Building permits dropped 6.1% to a 1.220 million units in June, the lowest since May 2017.
Equity prices in Wall Street era lower on Wednesday with the DOW JONES down 0.20% amid comments from US President Trump on the lack of progress in US-China trade negotiations.
EUR/USD moving away from 1.1200
From a technical perspective, the EUR/USD pair is rebounding from near the 1.1200 area, like what happened last week. On the upside, the next strong resistance is seen around 1.1245/50 and above attention would turn to the weekly top at 1.1280/85. A slide below 1.1200 would expose, last week lows at 1.1190 and point to a test of the critical support at 1.1180.
- GBP/USD is bouncing from the 1.2400 level.
- Resistances are seen at 1.2440 and 1.248, according to the Technical Confluences Indicator.
GBP/USD daily chart
GBP/USD is trading at 27-month lows as the market is having a small rebound above the 1.2400 figure.
GBP/USD 4-hour chart
Cable is challenging the 1.2440 resistance. If bulls manage to break above 1.2440 the next resistance can be seen at 1.2480, according to the Technical Confluences Indicator.
GBP/USD 30-minute chart
GBP/USD is trading between the 50 and 100 SMAs suggesting a correction in the medium term. Supports can be seen near 1.2414 and 1.2385
Additional key levels
Analysts at NBF point out that the average of the three core measures stands in line with the mid-point target of the Bank of Canada at 2.0% on an annual basis.
"Headline CPI declined in June as gasoline prices dropped a massive 8.0%, the sharpest pullback on record for that month. That said, other categories also contributed to June’s weakness as shown by CPI excluding food & energy rising a modest 0.08%, following a 0.31% surge in May."
"However, it is worth noting that the recent momentum is much stronger. Our in-house replications of CPI-Trim and CPI-median rose over the past 6 months at 2.4% and 2.5%, respectively."
"This is the strongest pace for the first six months of the year since 2008."
- USD/JPY is finding some support above the 108.05 level.
- Targets to the upside can be seen at 108.56 and 108.85.
USD/JPY daily chart
USD/JPY is trying to stabilize above 108.00 as the market is trading below the main daily simple moving average (DSMA).
USD/JPY 4-hour chart
USD/JPY is consolidating above the 108.05 level near the 100 and 200 SMAs. Bulls should retake 108.26 to have a chance to reach 108.56 and 108.85 to the upside, according to the Technical Confluences Indicator.
USD/JPY 30-minute chart
USD/JPY is challenging the 108.05 support and the 100/200 SMAs. If bears break below 108.08 the market could decline further towards 107.83 and 107.49 according to the Technical Confluences Indicator.
Additional key levels
Data released today showed that Housing Starts dropped 0.9% in June. While still subdued, activity should steadily improve in the second half of the year, explained Wells Fargo analysts.
“New residential construction continues to be fairly sluggish. Total housing starts declined 0.9% during June, dragged down by a sharp 9.2% decline in the volatile multifamily segment. Single-family construction fared better and rose a solid 3.5%. Single-family building has now improved in three of the past four months.”
“On a year-to-date basis, total starts are still running 3.7% below last year’s pace. Builders have contended with several weather-related challenges this year, which likely caused delays and depressed overall activity.”
“We expect a slow and steady improvement in residential construction for the remainder of the year. Starts slowed markedly in the second half of 2018 alongside rising mortgage rates and sluggish new home sales.”
“A steep 6.1% drop in total building permits during June may raise some eyebrows, however multifamily permits accounted for the entire decline.”
“Builders steadily regaining confidence also points to further improvements in coming months. The NAHB Housing Market Index edged up to 65 during July, with both present and future sales, as well as prospective buyer traffic, gaining one point during the month. Despite remaining below the sky-high levels of last year, the topline index has improved in six of the past seven months, and gained nine points since last December’s collapse.”
- US Dollar falls across the board as US yields hit fresh lows.
- USD/JPY turns negative after being unable to break 108.30 and the 20-day SMA.
The USD/JPY pair dropped below Asian session lows and fell to 108.04. As of writing it was trading at 108.05/10 with the negative tone intact. Earlier today, the pair was unable to break above the 108.30 area that became a strong resistance.
The move lower took place amid a decline in US yields and also as equity prices in Wall Street extended losses. The 10-year yield fell to 2.07%, the lowest since July 11. The DOW JONES was falling 0.15% and the NASDAQ 0.17%.
Another driver was the decline of the US Dollar over the last hours across the board. The DXY was falling 0.18% at 97.20, trimming one-third of yesterday’s gains.
Levels to watch
If the decline in USD/JPY continues, it might test the 108.00 area. Below the next critical level is 107.80 (weekly lows); a break lower could clear the way to more losses. On the upside, the 20-day moving average at 108.20 and 108.30 (daily high) form a barrier that if broken, should lead to further USD strength.
The weekly report published by the U.S. Energy Information Administration showed that commercial crude oil inventories in the US decreased by 3.12 million barrels in the week ending July 12 to 455.88 million. Market consensus pointed to a decline of 2.7 million.
According to the report, gasoline stocks rose 3.57 million barrels to 232.75 millon (against expectation of a 0.9 decline) and distillate stocks rose 5.69 million barrels to 136.2 million.
Crude oil prices turned lower after the report. WTI dropped toward $57.50 and then climbed back, approaching the level it had before the report.
The UK Prime Minister Theresa May said that she is worried about the state of politics, cited by Reuters. According to her the values “we enjoy, cannot be taken for granted”. Landmark agreements that lead to the current international order will last “but we cannot be complacent”, the UK PM said.
May added that persuasion, teamwork and a willingness to make mutual concession are needed. She explained that the inability to compromise drove politics to the wrong path.
- The AUD/USD pair extended the previous session's retracement slide from near two-week tops and remained under some selling pressure for the second consecutive session on Wednesday.
- The downfall has now dragged the pair to 100-hour EMA, with bears now eyeing a follow-through selling below the key 0.70 psychological mark amid resurfacing US-China trade tensions.
Sustained break through a support marked by 38.2% Fibo. retracement level of the 0.6910-0.7045 recent up-move will be seen as a key trigger for bearish traders and set the stage for a subsequent slide towards the 0.6975-70 region.
Meanwhile, technical indicators on hourly charts have been gaining negative traction and support prospects for a further decline, albeit bullish oscillators on the daily chart warrant some caution before placing aggressive bets.
A follow-through selling might turn the pair vulnerable to head towards challenging the 0.6900 handle before the pair eventually resumes its prior/well-established bearish trend and aim back towards testing support near mid-0.6800s.
On the flip side, the 0.7045-50 region might continue to act as a strong resistance, which if cleared will negate any near-term bearish bias and set the stage for further appreciating move towards reclaiming the 0.7100 handle.
AUD/USD 1-hourly chart
- Gold is spiking up and nearing 1,414.00 and 1,420.00 resistances.
- The main support is seen at the 1,400.00 figure.
Gold daily chart
Gold is currently consolidating gains in a triangle above its main daily simple moving averages (DSMAs)
Gold 4-hour chart
The market is trading above the 1,400.00 mark and the main SMAs suggesting bullish momentum in the medium term.
Gold 30-minute chart
Gold is having an intraday boost within its weekly range. Resistance can be seen at 1,1414.00 and 1,1420.00. On the other hand the main support is seen at the 1,1400.00 handle.
Additional key levels to consider
Analysts at TD Securities note that the Canadian CPI edged lower by 0.2% m/m (-0.22% unrounded) which pulled inflation to 2.0% y/y from 2.4% in May (market: -0.3% m/m, 2.0% y/y).
“As expected, gasoline was the main driver with the price at the pump falling by 8% m/m, which shaved 0.25pp from the headline print. Gasoline prices are also exerting a significant drag on a year-ago basis, which left the ex-energy measure sitting at 2.6% y/y, slightly below the 10-year high observed in May.”
“The Bank of Canada's preferred core inflation measures slipped to 2.03% on average from 2.10% in May, reflecting a 0.2pp deceleration in the trimmed mean measure from 2.3% to 2.1% y/y. However, this was partially offset by upward revisions to the weighted-median while CPI-common was unchanged at 1.8% y/y.”
“Headline inflation returning to the midpoint of the Bank of Canada's target range should come as a mild comfort to policymakers as they remain on the sidelines awaiting clarity on the global outlook, and the 2.1% y/y reading for Q2 is in line with revised projections from the July MPR.”
James Knightley, chief international economist at ING, notes that the US housing starts and building permits were weaker than expected in June, but consumer fundamentals are in good shape and plummeting mortgage rates are stimulating demand, offering hope for a turnaround.
“June US housing starts – the number of new residential construction projects started – have come in a little softer than expected. 1253k projects got underway last month, 0.9% down on May, versus the consensus forecast of 1260k. Building permits were down 6.1% month on month, leaving them at their weakest level since May 2017.”
“We remain upbeat on the prospects for US housing. After all, the consumer is in great shape with employment at record levels, wages rising strongly in real terms and confidence remaining firm. Importantly, mortgage rates have plummeted in the wake of the plunge in Treasury yields.”
Nathan Janzen, senior economist at Royal Bank of Canada, notes that the Canada’s manufacturing sales increased 1.6% in May and the increase extends recent string of Canadian manufacturing outperformance relative to US.
“The increase in manufacturing sales in May was, as expected, largely concentrated in the transportation sector. Still, sales edged up 0.2% excluding transportation components, and have yet to decline on that basis in any month of this year.”
“To be sure, growth in the Canadian manufacturing sector has not exactly been spectacular – but sales volumes (i.e. excluding price impacts) were still up 3.5% from a year ago in May and 2.0% year-to-date in 2019.”
“For now, though, the domestic economic data continues to look a little better. And, with inflation also holding around 2%, is another reason the Bank of Canada won’t likely need to rush to follow the US Fed with a widely expected rate cut later this month.”
- DXY remains sidelined around the 97.30 area.
- US housing sector figures disappointed estimates in June.
- The Fed will publish its Beige Book later in the day.
The greenback stays within the daily range around the 97.30 region when measured by the US Dollar Index (DXY).
US Dollar Index now looks to Fed’s data
The index manages well to keep business in the area of weekly highs in the 97.30/40 band amidst a context of scarce volatility and broad-based consolidative trading.
The greenback is holding on to the upper end of the range despite yields of the key US 10-year note are marching south, breaking below the key 2.10% level.
All in all, it seems markets’ speculations of a larger rate cut by the Fed at the July meeting are losing some momentum, allowing for the ongoing recovery in DXY, particularly after the positive performance from Retail Sales during June, as per Tuesday’s report.
In the data space, poor prints from the US housing sector did not dent the recovery in the buck after Housing Starts declined to 1.253M units during last month (-0.9%) and Building Permits also dropped 6.1% at 1.220M units.
Closing the day, the EIA will report on the weekly variation of US crude oil supplies ahead of the publication of the Fed’s Beige Book.
What to look for around USD
DXY has recovered some composure after once again testing the vicinity of the 200-day SMA in the 96.70 region on Friday, all in response to the dovish message from Chief Powell and the FOMC minutes. Speculations among investors have already priced in a 25 bps rate cut hits month, although a bigger rate cut is not utterly ruled out just yet. Trade tensions and global growth concerns continue to cloud the US outlook while the lack of upside traction in inflation remains worrisome. Confronting this scenario, the greenback still looks underpinned by its safe have appeal, the status of ‘global reserve currency’, solid US fundamentals when compared to its G10 peers and the shift to a more accommodative stance from the rest of the central banks.
US Dollar Index relevant levels
At the moment, the pair is losing 0.06% at 97.32 and faces the next resistance at 97.59 (high Jul.9) followed by 97.80 (monthly high Jun.3) and finally 98.37 (2019 high May 23). On the flip side, a break below 96.73 (200-day SMA) would aim for 96.46 (low Jun.7) and then 96.04 (50% Fibo of the 2017-2018 drop).
- Sliding US bond yields weighed on the USD and helped bounce off lows.
- Persistent fears of a no-deal Brexit hold investors from buying the GBP.
The GBP/USD pair struggled to capitalize on its mid-European session bounce from fresh 27-month lows, albeit has managed to hold its neck above the 1.2400 handle.
Having touched an intraday low level of 1.2382 - the lowest since April 2017, the pair witnessed some short-covering move in the wake of a subdued US Dollar price action, albeit struggled to attract any strong buying interest amid persistent fears of a no-deal Brexit.
A fresh leg of a free fall in the US Treasury bond yields exerted some pressure on the greenback, which remained on the defensive following the disappointing release of US housing market data, and turned out to be one of the key factors behind the intraday rebound.
Apart from Brexit woes, tempered expectations of aggressive easing by the Fed when it announces its latest monetary policy decision at the end of a two-day meeting on July 30-31 further collaborated towards capping the pair's attempted recovery move.
Hence, it would be prudent to wait for a strong follow-through before confirming that the pair might be in the process of forming a near-term bottom or positioning for any meaningful short-covering bounce back towards reclaiming the key 1.2500 psychological mark.
Technical levels to watch
- EUR/USD is consolidating the recent losses just below 1.1230 resistance.
- The level to beat for bears are at 1.1200 followed by 1.1164 to the downside.
EUR/USD daily chart
EUR/USD is hovering near the 1.1200 figure below its main daily simple moving average (DSMA).
EUR/USD 4-hour chart
EUR/USD is trading below 1.1250 resistance and its main SMAs. The bears want to break below 1.1200 to potentialy reach 1.1164 and 1.1120, according to the Technical Confluences Indicator.
EUR/USD 30-minute chart
EUR/USD is consolidating losses below 1.1230 resistance and the 100/200 SMAs, all-in-all suggesting a bearish bias. Immediate resistances are seen near 1.1230 and 1.1250, according to the Technical Confluences Indicator.
Additional key levels
- EUR/USD keeps holding on above the 1.1200 handle.
- EMU headline CPI surprised to the upside in June.
- US Housing Starts disappointed expectations last month.
The shared currency manages to keep the buying interest intact so far today, with EUR/USD navigating the area above the 1.1200 handle for the time being.
EUR/USD firmer on steady greenback
EUR met dip-buyers in the 1.1200 neighbourhood, or weekly lows, although gains appear so far limited around the 1.1280 region, area coincident with the 21-day SMA.
The European currency has also derived upside pressure after final headline consumer prices in Euroland for the month of June came in a tad higher than the preliminary readings, rising 0.2% inter-month and 1.3% from a year earlier. The Core reading, however, matched previous prints at 1.1%.
Somewhat collaborating with today’s tepid recovery, US Housing Starts and Building Permits disappointed expectations during last month, putting the greenback under some downside pressure.
What to look for around EUR
The inability of the pair to clear the important resistance area in 1.1280/90 has encouraged sellers to return to the markets, triggering the ongoing leg lower. Furthermore, occasional bullish attempts in spot should be seen as a short-lived against the backdrop of renewed and increasing speculations of another wave of monetary stimulus from the European Central Bank in the near term, via interest rate cuts (July/September), the resumption of the QE programme and changes in the forward guidance. Also weighing on the currency, the dovish stance from the ECB appears reinforced by the recent appointment of ex-IMF’s C.Lagarde to succeed M.Draghi. On the macro scenario, the slowdown in the region looks unremitting and it also reinforces the current accommodative attitude of the central bank.
EUR/USD levels to watch
At the moment, the pair is up 0.07% at 1.1217 and a break above 1.1286 (high Jul.11) would target 1.1320 (200-day SMA) en route to 1.1412 (high Jun.25). On the downside, the next support emerges at 1.1193 (monthly low Jul.9) followed by 1.1181 (low Jun.18) and finally 1.1106 (2019 low May 23).
- GBP/USD is under bearish pressure near 27-month lows.
- Support can be seen near 1.2390 and 1.2340 according to the Technical Confluences Indicator.
GBP/USD daily chart
GBP/USD is trading at 27-month lows as the bears are challenging the 1.2400 figure. Earlier in London, the UK Indflation in June came in as expected by analysts at 2% (year-on-year) with a limited reaction on the GBP.
GBP/USD 4-hour chart
Cable remains under selling pressure below 1.2440 and the main simple moving averages (SMAs). Bears likely intend to targets 1.2390 and 1.2340 levels to the downside, according to the Technical Confluences Indicator.
GBP/USD 30-minute chart
GBP/USD is challenging the 1.2414 resistance and the 50 SMA. The market remain under pressure however a corrective pullback above 1.2414 can lead to 1.2440 and 1.2480, according to the Technical Confluences Indicator.
Additional key levels
- USD/RUB fades yesterday’s advance and tests the 62.75 area.
- Russian Industrial Production expanded 3.3% YoY in June.
- Higher Brent prices lend support to RUB.
The Russian currency has resumed the upside today and is now forcing USD/RUB to trade in the lower end of the daily range around 62.75.
USD/RUB focused on data
The upbeat momentum around the Russian currency remains unchanged, with spot navigating at shouting distance from the area of yearly lows near 62.50.
RUB is deriving extra support today from the better tone in prices of the European reference Brent crude, up nearly 1% in the $65.00 area per barrel.
In addition, and also supporting RUB, Industrial Production expanded at an annualized 3.3% during last month, while Producer Prices contracted 0.6% inter-month in June and rose 4.1% from a year earlier, markedly lower than May’s readings.
Earlier in the day, the Ministry of Finance sold RUB 10.19 billion in OFZ bonds due in April 30 vs. a total demand for RUB 26.9 billion.
Later in the day, Retail Sales are due along with the Unemployment Rate and monthly GDP figures. In the US calendar, Housing Starts and Building Permits are due along with the EIA weekly report on US crude oil stockpiles and the Fed’s Beige Book.
What to look for around RUB
Declining inflation appears supportive of the easing cycle already triggered by the central bank, while Governor Nabiulina expects the economy to reach neutral rates at some point in mid-2020. Furthermore, healthy economic fundamentals and the increasing demand for domestic debt (OFZ) have been sustaining the rising appetite for Russian assets. Additionally, RUB derives extra buying interest from the carry-trade, expected higher oil prices, record-high speculative positioning and diminishing chances of US sanctions against the country.
USD/RUB levels to watch
At the moment the pair is receding 0.36% at 62.77 and a breach of 62.56 (monthly low Jul.16) would open the door for 62.49 (2019 low Jun.25) and finally 61.63 (monthly low Jul.11 2018). On the upside, the next barrier emerges at 63.16 (21-day SMA) seconded by 63.99 (high Jul.8) and then 64.02 (55-day SMA).
Josh Nye, senior economist at Royal Bank of Canada, notes that Canada’s headline CPI fell back to 2.0% in June with falling energy prices providing more offset against stronger food price inflation.
“The average of the BoC’s core measures ticked slightly lower but remained in the middle of the 1.9-2.1% range seen since early last year. The longest period of near-target core inflation since the recession continues.”
“The Bank of Canada’s dovish tone last week had nothing to do with current inflation trends and everything to do with global growth concerns and trade tensions. In fact, 2% core inflation is one of the key reasons the BoC doesn’t appear to be in any rush to follow the Fed in lowering interest rates.”
“The BoC sees some scope for core readings to dip below target in the coming quarters (the lagged effect of the economy’s recent slowdown) but thinks inflation will be sustainably at 2% by the middle of next year. That is contingent on the economy returning to near-2% growth—which is where the BoC’s concerns about the global backdrop enter the picture. But for now, inflation is sitting pretty at the BoC’s target, giving it time to be patient and see how activity is impacted by uncertainty and global headwinds.”
- Canadian headline CPI decelerated to 2.0% in June and weighed on the CAD.
- Rebounding Oil prices extended some support to Loonie and capped gains.
- The USD remains on the defensive amid sliding US bond yields and dismal data.
The USD/CAD pair quickly bounced around 25-pips in reaction to the latest Canadian consumer inflation figures, albeit remained well below the 1.3100 handle.
The pair managed to find some support near mid-1.3000s and the latest leg of a sudden pick up during the early North-American session was supported by softer Canadian consumer inflation report, showing that the headline CPI decelerated to 2.0% yearly rate as compared to 2.4% recorded in the previous month.
Moreover, the BoC's core CPI remained flat on a monthly basis (0.1% rise expected) and unexpectedly ticked lower to 2.0% from 2.1% previous - worse than consensus estimates pointing to a rise to 2.6%, which was eventually seen as one of the key factors that exerted some pressure on the Canadian Dollar.
Adding to the disappointment, Canadian monthly manufacturing sale - though posted a solid rebound in May, fell short of consensus estimates, which largely offset weaker US housing market data - building permits and housing starts, and remained supportive of the pair's uptick.
Meanwhile, the ongoing downfall in the US Treasury bond yields held the US Dollar bulls on the defensive. This coupled with a solid rebound in Crude Oil prices extended some support to the commodity-linked currency - Loonie and kept a lid on any runaway rally for the major, at least for the time being.
Hence, it would be prudent to wait for a strong follow-through buying before confirming that the pair might have already bottomed out in the near-term and positioning for any further near-term appreciating move back towards the 1.3145-50 heavy supply zone.
Technical levels to watch
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