Home Daily Commentaries US consumer inflation matches the forecast and the US dollar is losing some strength

US consumer inflation matches the forecast and the US dollar is losing some strength

Daily Currency Update

The US dollar index, which measures the performance of the dollar versus a basket of currencies, was sold off overnight; however, it rose by 0.2% and is at 97.15 at the moment. The annual inflation rate in the US increased to 2.5% in October from 2.3% in September, matching expectations. Also, consumer prices boosted it by 0.3%, the highest monthly gain in nine months, mainly due to the higher price of gasoline.

Core consumer prices in the United States, excluding volatile items such as food and energy, rose by 0.2 percent month-over-month in October 2018, following a 0.1 percent increase in September and matching market expectations. It is the highest monthly core inflation rate since July.

The Fed is still not showing signs of easing up on interest rate hikes and the US dollar is acting as a safe haven while China worries are driving risk off. Additionally, if trade war concerns wane, the focus may shift to political threats in the US and Europe.

The technical levels to consider for today for the US dollar index are 96.85 on the downside and 97.50 on the upside. The technical levels to consider for today for the USD/CAD are 1.3212 on the downside and 1.3240 on the upside.

Key Movers

The USD/CAD failed to reach the 1.3300 handle despite very weak crude in yesterday’s session. Without new Canadian data being released since last Friday, the only catalyst for the Loonie is still the crude WTI which this morning bounced from an intraday low of 54.73 and is now trading at 56.65 a barrel (a bounce of 3.5% from the lowest level so far).

The USD/CAD is flat this morning; nonetheless, it reached an intraday high (weak Loonie) yesterday of 1.3264; however, it quickly erased those gains (stronger Loonie). At this moment, the USD/CAD is trading at 1.3219, but if crude keeps bouncing, we might have a stronger Loonie (lower USD/CAD).

We expect some data by the end of the week including the ADP non-farm employment change, existing home sales, and manufacturing sales.

The technical levels to consider today in the USD/CAD are 1.3212 on the downside and 1.3240 on the upside.

The Brexit and problems facing Italy continued to drive the direction of the Euro. However, the Euro is higher this morning, trading at 1.1338, and it is trading to stay above the 1.1300 handle. The Euro rebounded strongly against the greenback yesterday and overnight. The Euro fell back in the overnight session, partly a reaction to the release of weaker than expected German Prelim. GDP this morning printed at -0.2% vs. the forecast of -0.1%. However, the EUR/USD gained some strength after the Euro-zone industrial production came at 0.9% vs. the 0.3% forecast and the Euro-zone gross domestic product was published at 1.7%, which was the same as the forecast.

The technical levels to consider for today for the EUR/USD are 1.1277 on the downside and 1.1354 on the upside.

The GBP/USD is still at the mercy of the headlines about the Brexit. The cable rallied yesterday reaching an intraday high of 1.3047, after that, in a classic “buy the rumor sell the fact” manner, it moved lower as news broke that the UK and the EU have provisionally agreed to the text on the Brexit withdrawal agreement.

While the text itself has been settled, the Financial Times reports that negotiations will continue over the coming days should political objections be raised by London or EU member states. The UK Cabinet will meet today to discuss the agreement, and Prime Minister May is set to canvas each sitting Cabinet member individually throughout the day. Headlines report that PM May wouldn’t call a meeting unless she was confident she could win Cabinet support. While far from being a done deal, Brexit headlines remain positive which has seen a marked improvement in the Pound.

Regarding the GBP/USD, the technical levels to consider for today are still wide because of possible Brexit events coming in the news. The level on the downside is 1.2850, and the level on the upside is 1.3175.

The Australian dollar bounced back above the 0.7200 handle overnight, buoyed by renewed optimism surrounding Brexit and US/China trade relations. Positive trade talk headlines, coupled with news that UK and EU negotiators are one step closer to finalizing a deal helped bolster investors’ demand for risk, driving the AUD/USD pair off yesterday from a low of 0.7164 to touch a high of 0.7238.

US and Chinese trade delegates are playing a crucial role in shaping short-term AUD direction, too. As a proxy to Chinese growth and subsequent demand for commodities, the recent trade dispute has forced a swift and massive AUD sell-off and has continued to cap investors’ appetite to drive the currency higher. The AUD found additional support throughout trade yesterday after the Yuan rallied (USD/CNH fell), shrugging aside extended downside moves towards the critical 7.00 handle. Should trade talks break down and the USD/CNH (Yuan) goes above 7.00, the door opens for a deeper AUD correction and drawback of the recent recovery.

The technical levels to consider for today in the AUD/USD are 0.7200 on the downside and 0.7260 on the upside.

NZD/USD has gradually pushed higher in overnight trading, supported by an improving risk appetite. There was little by way of domestic data overnight and so Kiwi traders have taken their cue from offshore events. This will likely to continue to be the case in the run-up to the weekend.

The technical levels to consider for today for the NZD/USD are 0.6756 on the downside and 0.6860 on the upside.

Expected Ranges

  • USD/CAD: 1.3212 - 1.3265 ▲
  • EUR/USD: 1.1277 - 1.1354 ▲
  • GBP/USD: 1.2850 - 1.3175 ▲
  • AUD/USD: 0.7200 - 07260 ▲
  • NZD/USD: 0.6756 - 0.6860 ▲