Mid-Day Report: Canadian Dollar Weakness Catches Up, Dollar and Yen Firm

Market Overview | Written by ActionForex.com | Oct 22 08 13:23 GMT |

The Canadian dollar's weakness is catching up with other major currencies after the release of worse than expected retail sales report. Headline sales dropped -0.3% mom in Aug comparing to expectation of -0.2%. Ex-auto sales also dropped -0.3% versus consensus of 0.0%. Leading Indicators dropped -0.2% in Sep versus expectation of 0.0%. In addition, the Canadian dollar is pressured by falling crude oil prices which dips to as low as $68.48 so far. USD/CAD surges to as high as 1.2545 and is set to test 1.2737 medium term resistance. Elsewhere dollar and yen remains generally firm. Dollar index is staying firmly above 85 level Some consolidations is seen but after all, further rally is still expected in near term. Sterling continues to be pressured after BoE Governor King said in a speech that the UK economy is entering a recession. BoE Minutes revealed unanimous vote for the 50bps cut on Oct 8. The minutes also showed increased concern on deep economic slowdown but worry on inflation was a bit eased. After all, the minutes suggest that further policy easing should be seen in Nov. Also released today, Australian CPI rose more than expected by 1.2% qoq in Q3, pushing yoy rate to 5.0%, highest since 1995. Japan all industry index dropped more than expected by -1.8% in Aug. Looking ahead, markets' focus will be on RBNZ rate decision in the coming Asian session. RBNZ is expected to cut OCR by 1% to 6.5%. USD/CAD Mid-Day Outlook Daily Pivots: (S1) 1.1954; (P) 1.2080; (R1) 1.2265; More. USD/CAD's recent uptrend resumed by taking out 1.2123 high decisively and reaches as high as 1.2545 so far. At this point, intraday bias remains on the upside as long as 1.2307 minor support holds. Further rise should be seen to 261.8% projection of 0.9823 to 1.0819 from 1.0297 at 1.2905 next. On the downside, below 1.2307 will turn intraday outlook neutral and bring consolidation. But downside should be contained above 1.2001 resistance turned support and bring rally resumption. In the bigger picture, preferred interpretation of the up trend from 0.9056 is that first wave rally is completed at 1.0248. Subsequent second wave consolidation was in form of triangle and finished at 0.9823. Rise from there is treated as third wave rally and is still in the acceleration phase. In other words, USD/CAD is just in the middle of a long term up trend which should extend beyond 1.2737 resistance to 261.8% projection of 0.9056 to 1.0248 from 0.9823 at 1.2944. Also, while interim consolidation could be seen, downside should be contained above 1.0819 resistance turned support and bring up trend resumption. Break of 1.1304 support is needed to indicate that a medium term top is formed. Otherwise medium term outlook remains bullish even in case of deep pullback.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
23:30	USD	U.S. Treasury Paulson speaks
23:50	JPY	Japan All industry index Aug	-1.80%	-1.70%	0.80%
00:30	AUD	Australia CPI Q/Q Q3	1.20%	1.00%	1.50%
00:30	AUD	Australia CPI Y/Y Q3	5.00%	4.80%	4.50%
08:30	GBP	BOE MPC Minutes	9--0--0	9--0--0	1--8--0
12:30	CAD	Canada Leading indicators Sep	-0.20%	0.00%	0.20%	0.30%
12:30	CAD	Canada Retail sales M/M Aug	-0.30%	-0.20%	0.10%
12:30	CAD	ex. Autos Aug	-0.30%	0.00%	0.40%
14:35	USD	Crude Oil Inventories		2.3M	5.6M