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Good fundamentals, bad fundamentals of the Pound, Euro and Aussie dollar helping the greenback rally

By OFX

The USD strength was led by a “risk on” environment and low yielders being sold, ie. EUR, GBP, CHF, and JPY. The USD Consumer Confidence Index increased again in October, following a modest improvement in September. The Index now stands at 137.9, up from 135.3 in September. Also, the Present Situation Index – based on consumers' assessment of current business and labor market conditions improved from 169.4 to 172.8 in October. A few signs of a weakening housing market in the US are starting to show through but were brushed aside with the " risk on" environment, today and yesterday. Case-Shiller US home prices grew 0.1% (MoM) in August, leading to a slowing in % YoY home price appreciation to 5.8% from 6% in August. Similarly, the 20-city composite slowed to 5.5% from 5.9%, which was well below consensus at 5.8%.

For the Greenback, the USD Change in Non-farm Payrolls (OCT) is expected at 193,000, and the USD Unemployment rate (Oct) is expected at 3.7% this Friday. Any significant difference with the actual numbers can imply higher volatility for the US dollar vs. its crosses. In the meantime, Donald Trump has become a severe market analyst tweeting yesterday that if the Fed ‘backs off and starts talking a little more Dovish, I think we’re going to be right back to our 2,800 target for the S&P’. The US equity market is in a price rally yesterday and today after Trump was lifting some of these ideas from Wells Fargo.

The USD dollar index continues on a steady path, touching new highs every day. It keeps its breakout of the 97.00 level seen yesterday, and it is trading at 97.17 at this moment with a strong move that might find resistance around 97.50.

The Canadian Dollar rallied higher after the leader of the Bank of Canada, Stephen Poloz was bullish in his remarks yesterday at the House of Commons Standing Committee on Finance. He said “..even with last week’s increase in the policy rate to 1.75 percent, monetary policy remains stimulative…” meaning that the BoC will need to raise its rate to be neutral to achieve the inflation target and pull inflation back from recent highs of 3% in July. Despite that, crude oil did not help the Loonie. Crude is falling from its highs in October 3rd 14.3%, trading right now at US$ 65.90 per barrel.

On the release front, Canada’s GDP (MoM) at 0.1% vs. 0.0% reading, and Canada’s GDP (MoM) at 2.5% vs. 2.4% reading are showing a better outlook for the Canadian economy.

Despite better news about the Canadian economy, the USD/CAD is trading flat at 1.3136, trying to consolidate in a narrower range from yesterdays’ high at 1.3147 and yesterday’s low at 1.3100

The lousy week continues for the Euro as yesterday’s GDP figures missed expectations across the board. Italy’s growth rate fell to a modest zero, in a blow to the government’s plans to kick-start the economy and it would appear that the trade protectionism coming out of the US is beginning to take hold in Europe. There may not be much hope in sight or a recovery soon either with economic confidence in Europe also dropping off and missing expectations. Lingering Italian fiscal woes and a softening growth outlook continue affecting the Euro as well.

In the economic calendar, the consumer price index core (YoY) for the Euro-Zone at 1.1% vs. 1.1% reading, and the consumer price index estimate (YoY) for the Euro-Zone at 2.2% vs. 2.2%. Also, today, the 3rd quarter GDP data failed to meet market expectations and offers a stark contrast to the strong growth enjoyed within the US. The Eurozone grew at just 0.2% between July and September, and the Eurozone increased (YoY) at only 1.7% vs. 1.8% reading.

The Euro continues falling from yesterday highs of from 1.1388, touching lows just minutes ago of 1.1311. It is trading around 1.1318 this morning

The cable was struggling as retail sales dropped shown by the latest CBI survey from October. The forecast was 20, but the headline balance fell to 5, which was the weakest since April. That was a sharp slowdown in this survey which back in June was signaling 6% volumes growth. This steep fall in consumer spending growth is why the UK GDP growth might slow into 4Q.

With the Bank of England decision just around the corner tomorrow at 6:00 am ET, the pound is struggling and in need of some positive news. The GBP/USD had fallen from the high of 1.3299 on September 20th to 1.2696 yesterday, this represents a fall of 4.5% against the USD, and it is now looking at lows not seen since the middle of August.

From a technical perspective, the GBP/USD pair is currently trading at 1.2715. We continue to expect support to hold on moves approaching 1.2696 while now any upward push will likely meet resistance around 1.2800.

The Aussie dollar is flat this morning after the nation’s inflation data missed estimates, while China’s economy also showed signs of a slowdown. It spurred interbank dealers to price AUD/USD lower immediately. The annual trimmed-mean CPI, the fundamental core measure, rose 1.8% in the third quarter compared with a forecast of 1.9%. Regarding China, China’s manufacturing PMI fell to 50.2 in Oct., lower than estimated and down from 50.8 in the prior month. Non- manufacturing index also dipped as the economy suffers from the trade war with the U.S.

While Australia’s 3Q CPI showed less inflationary pressure than in prior quarters, the RBA had flagged several one-off factors as likely leading to weaker gains, according to a note by Nomura analysts who expect price pressures to increase, albeit very slowly, with wage growth edging higher and a lower AUD adding modestly to inflation.

After the Aussie performed strongly in yesterday session, touching an intraday high of 0.7122 at 11:00 am ET, it has been falling to touch intraday lows of 0.7073. If there are no additional catalysts, it should move in a range of 0.7020 and 0.7160.

The New Zealand confidence amongst businesses remains flat as shown by the latest ANZ Business Outlook which also showed that residential and commercial construction intentions were dropping off a cliff.

However, the Kiwi, along with its Aussie counterpart, outperformed in yesterday session as US equities rebounded in the positive trade-related news. In an interview with Fox News, President Trump raised the possibility of a “great deal” with China following on from yesterday’s Bloomberg report which indicated Trump was prepared to go ahead with tariffs on all Chinese imports if talks at the G20 summit next month failed to reach an agreement.

Key technical levels to consider for the NZD/USD are 0.6480 on the downside and 0.6575 on the topside.