CAD Rises after Strong CPI, Dollar Retreats

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Canadian Dollar jumps higher again after data should consumer inflation rose further to multi-decade high. On the other hand, Dollar is paring some gains as stock markets are trying to recover. As for the week so far, Euro remains the worst performing one. Sterling is next and will look into BoE Governor Andrew Bailey’s comments. Yen and Swiss Franc are mixed for now.

Technically, USD/JPY’s breach of 114.30 minor support suggests that recovery from 113.47 is finished. Deeper fall could be seen to this support. We’ll see if greenback’s weakness would be displayed in other Dollar pairs. Or, Yen is staging a more broad-based recovery with GBP/JPY breaking through 154.86 minor support.

In Europe, at the time of writing, FTSE is up 0.61%. DAX is up 0.69%. CAC is up 0.93%. Germany 10-year yield is up 0.0078 at -0.008. Earlier in Asia, Nikkei dropped -2.80%. Hong Kong HSI rose 0.06%. China Shanghai SSE dropped -0.33%. Singapore Strait Times rose 0.12%. Japan 10-year JGB yield dropped -0.0148 to 0.137.

Canada CPI rose to 4.8% yoy in Dec, highest since 1991

Canada CPI ticked up from 4.7% yoy to 4.8% yoy in December above expectation of 4.7% yoy. That’s the highest level since September 1991. Excluding gasoline, CPI rose 4.0% yoy. On monthly basis, CPI dropped -0.1% mom, first decline since December 2020, in response to lower demand due to Omicron.

CPI common rose from 2.0% yoy to 2.1% yoy matched expectations. CPI median rose from 2.8% yoy to 3.0% yoy, above expectation of 2.9% yoy. CPI trimmed jumped from 3.4% yoy to 3.7% yoy, above expectation of 3.4% yoy.

Also from Canada, wholesales sales rose 3.5% mom in November versus expectation of 2.8% mom.

From the US, housing starts rose to 1.7m annualized in December while building permits rose to 1.8m annualized.

UK CPI accelerated to 5.4% yoy in Dec, core CPI rose to 4.2% yoy

UK CPI accelerated to 5.4% yoy in December, up from 5.1%, above expectation of 5.2% yoy. This is the highest reading since record began in 1997. CPI core rose to 4.2% yoy, up from 4.0% yoy, above expectation of 4.0% yoy.

Also released, PPI input came in at -0.2% mom, 13.5% yoy, versus expectation of 0.7% mom, 13.7% yoy. PPI output was at 0.3% mom, 0.6% yoy, versus expectation of 0.6% mom, 9.4% yoy. PPI output core was at 0.5% mom, 8.7% yoy, versus expectation of 0.8% mom, 8.6% yoy.

Australia consumer sentiment dropped to 102.2 in Jan, cautiously pessimistic on economic conditions

Australia Westpac-MI consumer sentiment index dropped from 104.3 to 102.2 in January. The -2% decline was much better than the -5.2% fall during the first month of the delta outbreak in New South Wales, the -6.1% drop in Victoria’s second wave in 2020, not to mention the epic -17.7% collapse in early 2020.

The ‘economic conditions, next 12 months’ sub-index dropped -9.6% from 104.9 to 94.8, a swing from “cautious optimism to cautious pessimism”. 55% of respondents, an outright majority, expected mortgage interest rates to rise over the next 12 months. Unemployment Expectations Index increased by 8.2% to 112.7, marking a significant deterioration.

RBA would make a decision on the bond purchases program at the February 1 meeting. Westpac expects the central bank to choose to “scale back rather than full wind down, in response to the sudden emergence of Omicron. But that would depend on the upcoming employment and inflation data.

Silver resumes rebound from 21.39, targeting 23.90 first

Silver’s rebound from 21.39 resumed by breaking through 23.42 and hitting as high as 23.63 so far. Further rise is now in favor as long as 22.79 support holds. Next target is 100% projection of 21.39 to 23.42 from 21.93 at 23.90.

The main question is still on whether corrective pattern from 30.07 has completed as a five-wave descending triangle at 21.39. Break of 23.90 projection level will affirm the bullish case. Upside acceleration could then follow to 161.8% projection at 25.21, which is close to 25.39.

However, rejection by 21.39 will keep the rebound from 21.39 corrective and maintain medium term bearishness.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.2478; (P) 1.2521; (R1) 1.2556; More

USD/CAD’s fall from 1.2963 resumes by breaking 1.2452 and intraday bias is back on the downside. Current development argues that whole pattern from 1.2005 has completed with three waves to 1.2963. Below Further decline would be seen to 1.2286 support, possibly further to retest 1.2005 low. Nevertheless, on the upside, break of 1.2569 minor resistance will indicate short term bottoming and turn bias back to the upside for stronger rebound.

In the bigger picture, focus will be on 38.2% retracement of 1.4667 (2020 high) to 1.2005 (2021 low) at 1.3022. Sustained break there should confirm that the down trend from 1.4667 has completed after defending 1.2061 long term cluster support. Further rise would then be seen towards 61.8% retracement at 1.3650. However, rejection by 1.3022 will maintain medium term bearishness. Break of 1.2005 will resume the down trend form 1.4667 and that carries larger bearish implications too.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
07:00 EUR Germany CPI M/M Dec F 0.50% 0.50% 0.50%
07:00 EUR Germany CPI Y/Y Dec F 5.30% 5.30% 5.30%
07:00 GBP CPI M/M Dec 0.50% 0.30% 0.70%
07:00 GBP CPI Y/Y Dec 5.40% 5.20% 5.10%
07:00 GBP Core CPI Y/Y Dec 4.20% 4.00% 4.00%
07:00 GBP PPI Input M/M Dec -0.20% 0.70% 1.00% 1.50%
07:00 GBP PPI Input Y/Y Dec 13.50% 13.70% 14.30% 15.20%
07:00 GBP PPI Output M/M Dec 0.30% 0.60% 0.90% 1.00%
07:00 GBP PPI Output Y/Y Dec 9.30% 9.40% 9.10% 9.30%
07:00 GBP PPI Core Output M/M Dec 0.50% 0.80% 0.80%
07:00 GBP PPI Core Output Y/Y Dec 8.70% 8.60% 7.90% 8.20%
09:00 EUR Eurozone Current Account (EUR) Oct 23.6B 20.3B 18.1B 19.4B
13:30 USD Housing Starts Dec 1.70M 1.65M 1.68M
13:30 USD Building Permits Dec 1.87M 1.71M 1.71M
13:30 CAD Wholesale Sales M/M Nov 3.50% 2.80% 1.40%
13:30 CAD CPI M/M Dec -0.10% 0.20% 0.20%
13:30 CAD CPI Y/Y Dec 4.80% 4.70% 4.70%
13:30 CAD CPI Common Y/Y Dec 2.10% 2.10% 2.00%
13:30 CAD CPI Median Y/Y Dec 3.00% 2.90% 2.80%
13:30 CAD CPI Trimmed Y/Y Dec 3.70% 3.40% 3.40%

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