USD/CAD
Weakening Domestic Strength: Disappointing Canadian retail sales figures were released showing a slowdown in Canadian consumer spending as continually high energy prices are starting to wear on consumer's wallets. Exports have been dropping off in the past few months, due to high energy prices hurting foreign demand while domestic demand is expected to pick up the slack. With contracting retail sales figures, shrinking automobile sales that we saw last week, and the Central Bank raising rates to cool the economy, prospects do not look good for Canadian consumers to take over diminishing export strength that has recently carried the economy through rough times.
Oil Woes: On top of less-than-ideal data, oil prices dipped below $60 per barrel when Hurricane Wilma missed the Gulf Coast refineries this morning. Oil did recover to trade back above $60 a barrel but it did very little to help the suffering CAD as the dollar continued to rally. With the hurricane past the critical point, worries of reoccurring nightmares from early September were calmed and the dollar continued to gain strength. Meanwhile, traders continued to unload overweight CAD positions leaving the currency rather hopeless.
Technically Speaking: The strong rally the dollar made against the loonie was still full of steam even as liquidity was slowly sapped out of the market going into the close. A retest of the double top 1.1893 level will likely offer the first stop, but carrying through would not be a difficult proposition. The downside is increasingly being contained by a rising trendline that is now at 1.1770.
EUR/USD
Trichet Speaks: ECB president Trichet made a televised speech towards the end of the New York session in which he tried to pay lip service to inflation in Europe. His comments fell on deaf ears from the market however with a rate hike from Europe largely discounted from in relevant markets. A potential hike would be made in less than prime economic conditions. Much of the region is battling with near record unemployment and slowing economic growth.
France Slips: Data from France gave rise to concerns that the union's second largest economy is could be further slow from its already tame level. Consumer spending reportedly fell 1.2 percent in September, pulling the annual measure to down to 3.6 percent from 5.7 percent the month before. With consumers funneling more of there disposable incomes towards energy bills, this could leave businesses in a position of further layoffs to salvage weaning profits.
Technically Speaking: The Euro rallied in the European session to the technically significant 1.2050 level, but a falling trendline starting from the beginning of this month contained any further euro bidding. The subsequent retracement leveled out in a rather barren support level. Upside potential is limited by dollar bidding that will sprout around the trendline currently resting at 1.2060, while support comes from both the psychological 1.1900 level and the three-month low 1.1875.
USD/JPY
Shining Carry Trade: Another round of speculation over where U.S. interest rates will peak carried the USDJPY pair to make another test of the two-year high. The spark that set off this bout of rumor mongering was crude oil's dip below $60 per barrel in intraday futures trading. With oil's role as the main force of inflation looking to ease, monetary policy makers can look to more ‘pure' factors in further decisions. A rate hike from the BoJ is contingent upon inflation, which will be softer with oil making less of an impact. On the other hand, the Fed is likely to see growth less encumbered by higher energy prices. This dollar perspective lends itself to a blurrier outlook as to where U.S. overnight lending rates will stop. This can mean an even greater carry trade between the dollar and yen than already exists now.
Rumorville: Bids continue to hit the market for the USDJPY, but rumors of a large build up of stops at 116.05/10 is keeping yen bulls on their toes in an effort to keep their trades on.
Technically Speaking: The five-week long channel that has formed in the USDJPY has come to another point of reckoning. After breaking 114 then 115, there is now another barrier at 116.00. The double top formed at 115.97 could hold for another few day, but the momentum lies behind a breach of this level. A correction would likely be halted at 115, which is both recent support and coincidently the bottom of the rising channel.
Richard Lee is a Currency Strategist at FXCM.
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