China imports rise boosts commodities while ECB QE report hits euro

The euro has eased off across the board on a Bloomberg report that the European Central Bank may reduce its bond purchases to €30 billion per month from January and simultaneously extend the duration of the QE programme by another nine months to at least September 2018. The ECB has not denied this story yet. Investors are taking no chances. If the story is true, it would mean low rates for longer, which in theory should be negative for the euro. In fact, the EUR/USD has already eased back to 1.1820 – not a massive move, but it could roll over in the event today's US CPI and retail sales data comes out ahead of forecasts. Meanwhile the EUR/GBP has dropped below 0.8900, while the EUR/JPY has fallen to 132.50.

Chinese imports of oil and iron ore surge

The euro has come under even more pressure against commodity currencies, which have been strong owing to rising metal and oil prices. The fact that China published a strong 18.7% year-over-year rise in September imports overnight suggests demand for commodities in the world's second largest economy remained robust. Indeed, inward shipments of iron ore rose more than 10% year-on-year in September to a record 102.8m tonnes, while crude oil imports hit 9 million barrels per day, above the 8.5 million bpd average between January and September. China thus remains the world's biggest oil importer, and this is helping to further support oil prices today.

EUR/CAD could be on the verge of a drop

With the euro under a bit of pressure from the ECB sources story and Canadian dollar getting a boost from oil prices, the EUR/CAD could be on the verge of a sharp move lower in the coming days. This pair has been trending lower since hitting a peak of 1.5260 in early June. The move down has been supported by the Bank of Canada turning hawkish, before it twice raised interest rates. So far, though, the losses have been fairly limited. After all, price remains above the still-rising 200-day average.

But that could change soon if the euro selling gathers momentum. Recent price action suggests rates want to move lower, as indicated for example by price creating lots of traps for buyers as shown on the chart. The latest such trap may have been formed on Wednesday when its attempt to break above old resistance circa 1.4805 failed to materialise into a rally. The EUR/CAD ended Wednesday's session lower after giving up its entire gains. This could well have been a key reversal day. The low of Wednesday's range was around 1.4765, a level which has turned into resistance in this second half of the week. The EUR/CAD's move lower may accelerate if support at 1.4640 gives way soon. If so, we could then see a sharp drop below the double bottom low of around 1.4450, where a potentially large pool of resting sell orders may pull price towards it, eventually. This bearish idea would be put on hold in the event price moves back above 1.4765 on a daily closing basis.