Mid-Day Report: Euro Lower as Weber Signals No Stimulus Exit Before 2011. Dollar Resumes Rally
Dollar rises sharply today on risk aversion and breaches recent high against Euro, Sterling, Aussie and Canadian. Weakness in global equities was carried through to European session, sending major indices mildly lower while US stocks are also set to open lower as selloff continues. Euro is additionally soft after ECB council member Weber said signaled that the stimulus measures will be in place throughout this year. Meanwhile, Canadian dollar drops sharp after release of tamer than expected CPI data.
ECB Weber said today that discussions about continuation of the exit of stimulus measures will be “focused on the first quarter” while ECB will need to “re-embark on a normalization procedure”. Weber suggested to keep full allotment in weekly, monthly and three-month refinancing operations until after the end of the year, which is “usually surrounded by some uncertainty regarding the liquidity situation.” The comments sent EUR/USD through last week’s 1.2733 low and Germany’s 30-year bond fell to a record low.
Headline inflation in Canada jumped from 1.0% yoy to 1.8% yoy in July, slightly below expectation of 1.9% yoy. However it’s the core CPI reading that surprised the markets, which unexpectedly moderated from 1.7% yoy to 1.6% yoy. The jump in headline CPI was largely due to introduction of a new sales tax, which transitory effects will be looked through by BoC. The tame core CPI would give room for BoC to normalize rates at a more “gradual” pace.
Dollar index’s break of 83.01 resistance confirms that whole rise from 80.08 has resumed. Intraday bias remains on the upside for 83.45 cluster resistance (38.2% retracement of 88.70 to 80.08 at 83.37). Decisive break there will also confirm that whole fall from 88.70 has finished at 80.08 and should pave the way to 61.8% retracement at 85.40 at least. In case of retreat, we’ll stay bullish as long as 81.92 support holds.
Daily Pivots: (S1) 1.0294; (P) 1.0355; (R1) 1.0462; More.
USD/CAD’s strong rally today and break of 1.0493 resistance confirms that rise from 1.0106 has resumed. Intraday bias remains on the upside as long as 1.0381 minor support holds and we’d expect further rise towards 1.0675 resistance next. On the downside, below 1.0381 will mix up the near term outlook and turn bias neutral first.
In the bigger picture, USD/CAD is breaking out of recent converging range, which suggests that rise from 0.9929 is possibly resuming. Break of 1.0675 will further affirm the case of rally resumption and should target another high above 1.0851. On the downside, below 1.0106 will suggest that another low below 0.9929 would be seen. But after all, considering bullish convergence conditions in weekly MACD, we believe that medium term decline from 1.3063 is going to reverse soon and focus will be on reversal signal even in case of another fall.
11:00 CAD CPI M/M Jul 0.50% 0.00% -0.10% 11:00 CAD CPI Y/Y Jul 1.80% 1.90% 1.00% 11:00 CAD BoC CPI Core M/M Jul -0.10% 0.10% -0.10% 11:00 CAD BoC CPI Core Y/Y Jul 1.60% 1.80% 1.70%
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