Mid-Day Report: CAD Recovers as BoC Sounds Positive, Dollar Retreats as Russia and Ukraine …

Canadian dollar recovers against the greenback in early US session after BoC left interests unchanged at 1.00% as widely expected. In the accompanying statement, BoC maintained its neutral stance and reiterated that the direction and timing of next change in rate will depend on incoming information. Nonetheless, regarding the economy, the central bank said that stronger growth was seen in Q2, which brought GDP almost as projected. Meanwhile, increasing number of export sectors “sectors appear to be turning the corner toward recovery”. “Activity in the housing market has been stronger than anticipated”. The tone was overall slightly more positive.

Dollar weakens today on news that Russia and Ukraine are seeking to cease-fire. It’s reported that Russian president Putin and Ukrainian president Poroshenko agreed on steps to a permanent cease-fire. Poroshenko wrote on twitter that “After speaking by telephone to the Russian president we reached agreement on achieving a ceasefire in Donbass. Glory to Ukraine!” Meanwhile, Putin’s spokesman Peskow, on the other hand, noted that Russia was not part of the conflict but had “discussed how to end” it. US president Obama noted that there are “a lot of follow-up on so-called announced ceasefires” but he emphasized, “if in fact Russia is prepared to stop financing, arming, training, in many cases joining with Russian troops, activities in Ukraine and is serious about a political settlement, that is something we all hope for.” Overall, the greenback is seen mildly lower against other major currencies on the news but the retreat is so far limited.

Sterling remained weakest major currency next to yen. The selloff in the pound seems accelerating after reports on the referendum on Scottish independence. It’s reported that a YouGov poll showed jump in the support from pro-independence to 47% this week. That compared to 53% support of anti-independence. So, the case of independence is becoming a possibility to the markets. It’s perceived that independence of Scotland would create both political and economic uncertainties. And, the future of Sterling is a major focus of debate as Scottish first minister Salmond insisted the continuation of pound in case of independence. But three other main political parties rejected that idea. There would be much more volatility in the pound ahead of the ballot on September 18.

On the data front, US factory orders rose 10.5% in July. UK PMI services came in much stronger than expected at 60.5 in August, comparing to expectation of a fall to 58.6. BRC shop price index dropped -1.6% yoy in August. Eurozone services PMI was revised down to 53.1 in August, retail sales dropped -0.4% mom in July. China non manufacturing PMI rose to 54.4 in August while HSBC chines services PMI rose to 54.1. Australia GDP slowed to 0.5% qoq in Q2 but beat expectation of 0.4% qoq.

Daily Pivots: (S1) 104.51; (P) 104.86; (R1) 105.43; More…

USD/JPY retreats mildly after initial rally today. But with 104.77 minor support intact, intraday bias remains on the upside. At this point, as price actions from 105.43 could unfold as a consolidation pattern, we’d stay cautious on strong resistance from 105.43 to bring reversal. Below 104.77 minor support will turn bias back to the downside for 103.55/104.27 support zone first. Nonetheless, sustained break of 105.43 will confirm larger up trend resumption and will target 111.62 fibonacci level next.

In the bigger picture, at this point, there is no confirmation of medium term reversal yet even though bearish divergence condition was clear in weekly MACD. Attention remains on 100.61 key support level and decisive break there will confirm the bearish case. In that case, deeper decline should be seen back to 38.2% retracement o 75.56 to 105.41 at 94.00. In case of another rise, we’ll focus on reversal as it approaches 50% retracement of 147.68 to 75.56 at 111.62.

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
23:01
GBP
BRC Shop Price Index Y/Y Aug
-1.60%

-1.90%

01:00
CNY
Non-manufacturing PMI Aug
54.4

54.2

01:30
AUD
GDP Q/Q Q2
0.50%
0.40%
1.10%

01:45
CNY
HSBC China Services PMI Aug
54.1

50

08:00
EUR
Eurozone Services PMI Aug F
53.1
53.5
53.5

08:30
GBP
Services PMI Aug
60.5
58.6
59.1

09:00
EUR
Eurozone Retail Sales M/M Jul
-0.40%
-0.30%
0.40%
0.30%
14:00
CAD
BoC Rate Decision
1.00%
1.00%
1.00%

14:00
USD
Factory Orders Jul
10.50%
10.90%
1.10%

18:00
USD
Fed’s Beige Book Report

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