CAD higher ahead of CPI report, ECB hints more stimulus

Forex News and Events

Waiting for Canada’s inflation report (by Arnaud Masset)

After a sharp appreciation of the US dollar against the loonie, the Canadian dollar regains ground as crude oil prices stabilise. However, we believe that this recent correction will be short-lived as the fundamentals of the Canadian economy are lacking the strength to reverse the current trend. Unemployment reached 7.1% in September, while wholesale trade and retail sales continue to show signs of weakness. Today’s inflation figures will demonstrate that crude oil prices continue to weigh on the headline CPI, which is expected to decrease to 1.1%y/y - below BoC’s target of 2% but still within the target range of +/-1% - from 1.3% in the previous month. On the other hand, the core gauge is expected to increase to 2.2%y/y from 2.1% in August.

All in all, we believe that the risk remains on the downside for loonie as we expect a more accommodative stance from the BoC in spite of a relatively hawkish message at its last meeting. Moreover, dollar bulls are patiently sitting on the sidelines for now, waiting for the rate hike talks to resume. We believe that the $1.32 level is a decent target given the overall situation.

ECB QE almost certain to be expanded (by Yann Quelenn)

With no surprise, the European Central Bank has maintained its main refinancing rate unchanged at 0.05%. However the announcement by ECB President Mario Draghi that he is prepared to cut interest rates in the Eurozone sends the EURUSD back to 1.1100. In addition and as we expected, Draghi is willing to step up the pace of the Eurozone as well as increasing the duration of the easing program which end data was initially set up to September 2016.

Draghi is concerned about the slowdown in emerging markets, in particular China, and he added that downside risks for the Eurozone’s inflation and growth are rising. Next economic data will be closely regarded and official announcement will be made at the next meeting in December. At this moment the QE will be reassessed and very likely expanded. For the time being €60bn are injected to the market. It could go up to €80bn.

We remain bearish on the EURUSD. QE is so efficient that it needs to be increased and made longer. Another currency, EURCHF, is pushed downside and we believe that the SNB will be forced to react. Switzerland is finding back its safe haven status because of mounting uncertainties in the Eurozone. Only equity markets are rising. The era of cheap money is just at its beginning and money will keep on flowing in stocks markets.

SNB to react ?

We believe that the SNB are poised to react in the event that the Swissie strengthens lower than 1.0700 CHF for one euro. As the EURCHF is pushed downside, the Swiss central bank now finds itself in a difficult situation. For the time being, the SNB still has some time to react as the ECB will only officially announce its adjustments to its QE programme at its December meeting. A new peg is now a distinct possibility. The SNB has a massive battle ahead against the backdrop of a massive ECB QE and mounting European uncertainties that are bringing capital back to safe haven Switzerland. A peg could be a good compromise as rates are already too low. Decreasing rates again would only serve to punish CHF investors for the ECB monetary policy decisions.

EURUSD - Declining Sharply

The Risk Today

Yann Quelenn

EUR/USD has moved sharply lower breaking supports at 1.1105 (23/09/2015 low) and 1.1087 (03/09/2015 low) on Draghi's declaration yesterday. Hourly resistance is given at 1.1387 (20/10/2015 low). Stronger resistance can be found at 1.1561 (26/08/2015 low). Expected consolidation. Since March 2015, the pair is improving. Key supports can be found at 1.0458 (16/03/2015 low) and 1.0000 (psychological support). The technical structure favours an eventual break higher. Strong resistance is given at 1.1871(12/01/2015).

GBP/USD is consolidating. Support lies at 1.5202 (13/10/2015 low) and hourly resistance can be found at 1.5529 (18/09/2015 high). A long as prices remain in this range, there is no clear mid-term momentum. Expected momentum towards resistance at 1.5529. In the longer term, the technical structure looks like a recovery as long as support given at 1.5089 stands. A full retracement of the 2013-2014 rise is expected.

USD/JPY is pushing higher. The pair is now targeting strong resistance is given at 121.75 (28/08/2015 high). Hourly support still lies at found at 118.07 (15/10/2015 low). A long-term bullish bias is favored as long as the strong support at 115.57 (16/12/2014 low) holds. A gradual rise towards the major resistance at 135.15 (01/02/2002 high) is favored. A key support can be found at 116.18 (24/08/2015 low).

USD/CHF has moved sharply higher before bouncing back on resistance at 0.9740 (07/10/20150 low). Hourly support is given at 0.9476 (15/10/2015 low). Expected consolidation. In the long-term, the pair has broken resistance at 0.9448 suggesting the end of the downtrend. This reinstates the bullish trend. Key support can be found 0.8986 (30/01/2015 low).

Resistance and Support: