Mid-Day Report: CAD Rises on Core CPI, GBP Pared Gains

Canadian dollar strengthen is early US session after stronger than expected inflation data. headline CPI was unchanged at 2.10%, inline with consensus. Nonetheless, BoC CPI core accelerated to 2.1% yoy versus consensus of 1.8% yoy. Also released from Canada, wholesales sales dropped -0.3% mom in July. Released earlier today, Eurozone current account surplus widened to EUR 18.7b in July. German PPI was unchanged at -0.8% yoy in August. Japan all industry index dropped -0.2% mom in July.

Sterling soared originally as Scotland rejected independence from UK. The referendum showed 55.3% rejecting independence while only 44.7% supported it. Now that the risk is behind, BoE is seen to be back on track, and “business as usual” as some described. The central bank is seen to hike rate next year as recovery gather momentum. However, the pound reversed today’s gain as the impact from the results faded.

Investors turned their focus to Eurozone as they gauged the implication of ECB’s announcement that 255 European banks borrowed only EUR 82.6B at the first TLTRO. The market had anticipated a range of EUR 100-300b. The disappointing TLTRO take-up suggested the ECB might need to accelerate QE measures. The focus now is turned to the announcement of the 3-year LTROs repayment on September 24 as banks were given an opportunity to shift funds from the 3-year LTRO or MRO into the TLTRO. In other words, the repayment would indicate the amount of new liquidity that the ECB will inject via the first TLTRO.

The Japanese yen remains the weakest major currency this month. The government downgraded the overall assessment of the economy in September, that’s the first downgrade in five month. The government noted that that private consumption appeared to be “pausing recently”. The economy is still on course for a “moderate recovery”, but “weakness can be seen in some areas”. That’s a contrast to BoJ’s view published earlier this month as it’s confident of a moderate recovery. A cabinet official, nonetheless, said there is no divergence in view.

Daily Pivots: (S1) 1.6287; (P) 1.6348; (R1) 1.6450; More

GBP/USD reached as high as 1.6523 earlier today but retreated sharply since then. At this point, outlook in GBP/USD remains unchanged. Main focus is on 1.6643 cluster resistance zone, 50% retracement of 1.7190 to 1.6051 at 1.6621. As long as this resistance zone holds, we’d still expect fall from 1.7190 to resume later. Below 1.6243 minor support will turn bias back to the downside for retesting 1.6051 support first. However, sustained break of 1.6621/43 will indicate that fall from 1.7190 is finished and will turn near term outlook bullish for retesting this resistance

In the bigger picture, price actions from 1.3503 (2009 low) are treated as consolidations to long term down trend from 2.1161. The current development, with medium term top formed at 1.7190, argues that such consolidation is possibly completed, just below 50% retracement from 2.1161 to 1.3503 at 1.7332. The firm break of 55 weeks EMA affirmed this bearish case and GBP/USD is now heading back to 1.4813 key support level.

GBP/USD 4 Hours Chart

GBP/USD Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
04:30
JPY
All Industry Activity Index M/M Jul
-0.20%
0.40%
-0.40%

06:00
EUR
German PPI M/M Aug
-0.10%
-0.10%
-0.10%

06:00
EUR
German PPI Y/Y Aug
-0.80%
-0.80%
-0.80%

08:00
EUR
Eurozone Current Account (EUR) Jul
18.7B
14.3B
13.1B

12:30
CAD
CPI M/M Aug
0.00%
-0.10%
-0.20%

12:30
CAD
CPI Y/Y Aug
2.10%
2.10%
2.10%

12:30
CAD
BoC CPI Core M/M Aug
0.50%
0.20%
-0.10%

12:30
CAD
BoC CPI Core Y/Y Aug
2.10%
1.80%
1.70%

12:30
CAD
Wholesale Sales M/M Jul
-0.30%
0.80%
0.60%
80.00%
14:00
USD
Leading Indicators Aug

0.40%
0.90%

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