Morning Report: USD Up On CPI Beat

Key Data Releases Today

0830GMT – GBP Retail Sales y/y (SEP) exp 3.4% v 4.5%
1230GMT – USD Continuing Claims exp 2380k v 2389k
1230GMT -USD Initial Jobless Claims exp 284k v 264k
1300GMT – USD House Price Index exp 0.3% v 0.1%
1345GMT -USD Manufacturing PMI exp 57 v 57.5
1400GMT -EUR EuroZone Consumer Confidence exp -12 v -11.4
1400GMT -USD Leading Indicators (SEP) exp 0.7% v 0.2%


Overview:

YoY US CPI came in slightly better than expected Yesterday printing 1.7% v 1.6% which  although doesn’t do much to change the Fed’s perspective , does improve US economic sentiment in light of recent global disinflationary pressure and saw risk sentiment improve somewhat. Elsewhere BoE reveal dovish Minutes release versus a less dovish BoC policy statement.

  • USD improved yesterday on better CPI
  • EUR still weak on talk of ECB bond buying and better US data
  • AUD stronger as better US data helps risk sentiment and an “as expected” fall in inflation leaves all options open for RBA.
  • CAD stronger as BoC remove “neutral” from their policy statement
  • JPY softer as trade deficit widens and US CPI improves
  • GBP weakened on speculation that Rates will be kept on hold for longer than expected following BoE minutes release.

Key Trades

  • EURUSD: Short Term Bearish – No Change
  • USDCAD: Short Term Bullish – No Change
  • GBPUSD: Bearish – Revised (Longs exited, shorts opened)
  • USDJPY: Bullish – No Change
  • AUDUSD: Short Term Bearish – No Change

Analysis

EURUSD: Short Term Bearish – No Change

  • Shorts opened on bearish H1 break of trendline in line with Order Flow Indicators having crossed to the downside are still in play
  • Daily Order Flow Indicators firmly down in line with OBV – looking for break lower and retest of the NFP low.

Price fell yesterday on continued talk of ECB bond buying and improved US CPI data. French & German PMI’s came in mixed with a weaker print out of France adding downside pressure at the London open, but better than expected data out of Germany has seen the Euro rally off this mornings lows.

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USDCAD: Short Term Bullish – No Change

  • Still holding longs as we tested Friday low and rejected.
  • Daily Order Flow Indicators  are still positive here with OBV pushing higher
  • Longs still in play whilst we hold the bullish trendline and Friday’s low remains unbreached on a closing basis.

CAD was stronger yesterday as The BoC released a less dovish than expected statement, removing the word “neutral” from their language. Speculation that officials are more open to raising rates boosted the currency but not enough to close below Yesterday’s lows.

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GBPUSD: Bearish – Revised (longs exited, shorts opened)

  • Daily Order Flow indicators have crossed lower here where we have exited longs and initiated shorts targeting the NFP lows.

Price fell yesterday on a dovish BoE minutes release with policy makers noting increases risk to the UK from a slump in the EuroZone economy. Retails Sales data out today could signal a worsening of the UK recovery story.

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USDJPY: Bullish – No change

  • Longs are still in play with price continuing to hold the bullish trendline
  • Will add to longs on break of Monday’s high in line with lower timeframe Order Flow Indicators and Yesterdays Daily pin bar.

A positive US CPI release helped firm up risk sentiment which saw the safe haven yen lose ground. With the BoJ still on course to introduce further stimulus inline with comments from BoJ’s Kuroda that he would welcome a lower exchange rate, our bullish case remains firmly intact here.

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AUDUSD: Short Term Bearish – No Change

  • Short from break of Daily pin bar against contracting triangle resistance line. 
  • Daily Order Flow Indicators still down but near their midlines here
  • Targeting a retest of the NFP lows initially. Refer to AUDUSD analysis for bigger picture.

Aussie continues to trade in the contracting triangle formation and is reaching the crucial crossroads stage. Improving initially on better risk sentiment owing to stronger US data, the pair failed to make any proper headway and our target is still lower in line with comments from the RBA that the exchange rate still remained high by historical standards.

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