LOONIE FALLS AFTER CANADA INFLATION AND RETAIL SALES DATA DISAPPOINTS

The Canadian dollar declined sharply after the latest CPI numbers disappointed. In September, the country’s CPI increased by 2.2%, which is the lowest level since May this year. It was also lower than the consensus estimates of 2.7% and August’s increase of 2.8%. On a MoM basis, the CPI shrank by minus 0.4%. The closely-watched core CPI rose by 1.5%, which was lower than the consensus 1.8%. Additionally, the core retail sales for August shrank by minus 0.4%, which was lower than the consensus estimates of 0.2%.

Asian markets were mixed today after China released its third quarter GDP numbers. The numbers showed that the economy grew by 6.5%, which was the slowest rate since 2009. The slowdown in growth was attributed to the ongoing trade skirmish between the US and China. Chinese stocks fell immediately after the data was released and then moved up after reassurances from senior government and central bank officials. The Shanghai Composite Index ended the day up by 2.60% while Japan’s Nikkei lost 0.60% of its value. In Europe, the DAX was little moved while US futures pointed to a higher open.

The price of crude oil halted its weekly decline as traders paid closer attention to the US-Saudi relations. The two countries are facing one of the toughest challenges in decades following the disappearance of a Saudi journalist. Trump has taken a cautious approach to the issue because of the power Saudi has. It is a major investor in American companies. It is also among the biggest holders of US treasuries. In addition, it has placed orders worth hundreds of billions of dollars in American-made arms. Most importantly, it is the major determinant of the world crude oil prices. If it reduced supplies, the American economy would suffer from the increased prices.

In the European Union, Italian bonds resumed the major sell-off after the EU rebuked the country’s budget. The yield on Italy’s sovereign bond rose by 10.7 basis points to 3.79%. This was its highest level since 2014. In addition, the spread between the Italian bonds and German Bunds rose to a high of 338.4 basis points. This was the highest level since 2013 and is regularly seen as a measure of risk premium demanded to hold the bonds. These issues are mostly because of the new government’s proposed budget which has some serious compliance issues with the EU’s guidelines.

EUR/USD

The EUR/USD pair achieved a major milestone today. It fell to a low of 1.1432, which was the lowest level since Tuesday last week. As expected, the pair started moving up, in a bid to complete the cup and handle pattern. Unless there is a major market news announcement, the pair is likely to continue moving higher until it reaches the 1.1500 level, which is close to the 50% Fibonacci Retracement level. At this level, it could then resume the downward trend or accelerate upwards.

XBR/USD

The price of crude oil declined to a weekly low of $78.34. This was also the lowest level since September 26 and was along the 50% Fibonacci Retracement level. It then started to move up, reaching a high of $80. Still, there are indications that the XBR/USD pair will resume the downward momentum unless there is a fallout between the US and Saudi Arabia. This is confirmed by the Ichimoku Kinko Hyo and the MACD indicators.

USD/CAD

The Canadian dollar fell sharply against the USD after the weak Canadian CPI and retail sales numbers. The USD/CAD pair reached a high of 1.3120, which was the highest level since September 12. It was also a continuation of the bull run that started on October 1. The pair’s RSI rose to 70 while the 7, 14, and 30-day EMA show that the pair could continue to move up. This is further confirmed by the momentum indicator as shown below.