Dollar recovery, eyes on UK and Canadian CPI

The dollar’s overnight sell-off didn’t last very long. The greenback is trying to rally in the Asian session as traders became cautious after learning that Poland was hit by a Russian-made projectile. But overall trade is subdued so far. The Aussie and Kiwi are the week’s strongest at this point, supported by optimism about China’s reopening. The Yen and Swiss Franc are the weakest on positive risk sentiment. The dollar, euro and pound sterling are mixed. The focus will now be on inflation data from the UK and Canada.

Technically, some focus will remain on gold to assess whether the dollar is ready for the rally. Gold is clearly losing its bullish momentum as seen in the 4-hour MACD as it nears the 38.2% retracement from 2070.06 to 1614.60 at 1788.58. The break of minor support 1753.09 will indicate that a temporary top is at least in place. A deeper drop would then be seen at the 4:55 EMA (now at 1726.20).

In Asia, at the time of writing, the Nikkei is up 0.13%. Hong Kong’s HSI index is down -1.14%. China Shanghai SSE is down -0.22%. Singapore Strait Times is down -0.05%. Japan’s 10-year JGB yield is up from 0.0008 to 0.245. Overnight, the DOW rose 0.17%. The S&P 500 rose 0.87%. The NASDAQ rose 1.45%. The 10-year yield fell -0.066 to 3.799.

GBP/CAD pressing key resistance ahead of UK and Canadian CPI

The GBP/CAD is a pair to watch today along with inflation data from the UK and Canada. The pair attempted to resume higher from 1.4069 this week and broke through the resistance at 1.5811. Still, there is no clear follow-up when buying so far.

Overall, it is now pressing important resistance at 1.5875 (2019 low). The 55-week EMA (now at 1.6012) is also nearby. Rejection by this resistance area followed by a break of the support at 1.5167 will keep the medium term outlook neutral to bearish.

However, a sustained break of resistance will solidify the case for an uptrend reversal. A further break of the 61.8% projection from 1.4069 to 21.5811 from 1.5167 to 1.6244 will likely result in an upward acceleration towards a 100% projection at 1.6909.

Machinery orders in Japan fell -4.6% m/m in September

Private sector machinery orders in Japan fell sharply by -4.6% m/m in September, much worse than expected by 0.7% m/m. This followed a -5.8% decline in August.

Nonetheless, for the October-December period, manufacturers surveyed by the Cabinet Office expect base orders to rise by 3.6%.

The government also downgraded its view on machinery orders to “the recovery has stalled”, “the economy is recovering”.

Australia’s Westpac index points to weak growth next year

Australia’s Westpac Leading Index fell from -1.09% to -1.19% in October, a new post-pandemic low. Westpac said that was consistent with “low and sustained growth” in 2023. It expects GDP growth to slow from around 3.4% in 2022 to just 1% next year.

He added that “the main drivers of the slowdown are: monetary policy tightening; lower commodity prices; and weak employment growth as capacity constraints weigh.

On RBA policy, Westpac expects another 25 basis point rate hike at the Dec. 6 meeting. And, “an alluded pause in tightening is unlikely to occur in 2022 or the early months of 2023 as the Bank continues to underperform its inflation targets.”

Look forward

Inflation data from the UK takes center stage in the European session, with the CPI and PPI featured prominently. Later in the day, Canada will release the CPI and housing starts. The United States will release retail sales, import prices, industrial production, business inventories and the NAHB housing index.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.0258; (P) 1.0369; (R1) 1.0458; After

A temporary high is formed at 1.0481 with current pullback. The intraday bias on EUR/USD has turned neutral for some consolidations. The decline should be contained by the resistance at 1.0092 turned support to bring another rally. The breakout of 1.0481 will resume the rise from 0.9534 and target the 1.0609 Fibonacci level.

Overall, a medium-term bottom was in place at 0.9534, pending bullish convergence on the daily MACD. Even as a corrective upside, the rally from 0.9534 should aim for a 38.2% retracement from 1.2348 (2021 high) to 0.9534 at 1.0609. A sustained trade above the 55-week EMA (now at 1.0566) will increase the chances of a trend reversal and target a 61.8% retracement at 1.1273. This will now remain the preferred case as long as 1.0092 resistance becomes support.

Economic Indicators Update

GMT Ccy Events Real Provide Previous amended
23:30 USD Westpac Leading Index M/M Oct -0.10% 0.00%
23:50 JPY Machine controls M/M Sep -4.60% 0.70% -5.80%
00:30 USD Wage price index Q/Q Q3 1.00% 0.90% 0.70% 0.80%
04:30 JPY Tertiary industry index M/M Sep -0.4% 0.60% 0.70%
07:00 GBP CPI M/M Oct. 1.70% 0.50%
07:00 GBP CPI A/A Oct 10.60% 10.10%
07:00 GBP Basic CPI Y/Y Oct 6.40% 6.50%
07:00 GBP RPI M/M Oct. 1.80% 0.70%
07:00 GBP RPI A/A Oct 13.40% 12.60%
07:00 GBP Input PPI M/M Oct 1.00% 0.40%
07:00 GBP Input PPI Y/Y Oct 17.70% 20.00%
07:00 GBP Output PPI M/M Oct 0.00% 0.20%
07:00 GBP Output PPI Y/Y Oct 14.80% 15.90%
07:00 GBP PPI Core Output M/M Oct 1.30% 0.70%
07:00 GBP PPI Core Output Y/Y Oct 14.00% 14.00%
13:15 BODY Starts Oct. 275K 300K
13:30 BODY CPI M/M Oct. 0.80% 0.10%
13:30 BODY CPI A/A Oct 7.00% 6.90%
13:30 BODY CPI Median Y/Y Oct 4.80% 4.70%
13:30 BODY IPC truncated Y/Y Oct 5.30% 5.20%
13:30 BODY IPC Common Y/Y Oct 5.90% 6.00%
13:30 USD M/M retail sales Oct. 0.90% 0.00%
13:30 USD Retail sales excluding Autos M/M Oct 0.40% 0.10%
13:30 USD Import Price Index M/M Oct -0.50% -1.20%
14:15 USD Industrial Production M/M Oct 0.20% 0.40%
14:15 USD Capacity Usage Oct. 80.40% 80.30%
15:00 USD Business inventories sept. 0.50% 0.80%
15:00 USD NAHB Housing Market Index November 36 38
15:30 USD crude oil inventories -2.0M 3.9M

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