USD/CAD
Consumers To The Rescue: Higher Canadian retail sales figures lent to further speculation that short term interest rates will be on the rise in the near future as Governor David Dodge remains preventive of creeping inflationary pressures. Contrary to previously released growth figures, consumer spending remains buoyed in the world's eighth largest economy as consumers increased purchases of automobiles. However, notable was the decline in the core component, which excludes the auto purchases. For the third quarter, retail sales actually dipped 0.3 percent. Less than the expected 0.4 percent estimated decline, the dip follows the 1.7 percent surge seen last month. Nonetheless, the economy remains expansive at a healthy pace and as a result, will likely need further rate increases to curb potential inflationary pressures. Subsequently, traders re-initiated long positions in the loonie as a 25 basis point raise seemed forthcoming.
Technically Speaking: Dollar momentum died after a retest of the 1.1747 resistance ceiling built over the past 24 hours. As a result, the 23.6 percent fib level at 1.1697 led to a minimal barrier with short consolidation occurring at 1.1662 (38.2 percent fib level from the weekly move). Already penetrating below the fib level, the subsequent 1.1633 figure test looks imminent before any upside shift can be considered.
AUD/CAD
Downside For The Bloc: Combined with today's positive Canadian dollar data, the loonie garnered strength from a mixed report by Westpac-Melbourne Institute's leading index of economic activity. Although rising in the month of October by 0.5 percent, the report included the fact that growth in the Australian economy had slowed from the second quarter. Recovering in the month of June to a 4.7 percent expansion, the growth pace in the economy looks to finish approximately at 2.5 percent for the year of 2005. Subsequently, domestic spending looked to plateau and dip slightly in 2006 leading to further declines in the overall expansion. The figures are not too far off from tonight's release of New Zealand gross domestic product. According to Statistics New Zealand, the economy grew a paltry 0.2 percent after expanding by 1.1 percent in the second quarter. Bearishness abound, the region's expansion looks to be placed on hold with no further positive monetary tightening in the near future.
Technically Speaking: Continuing on the overall downtrend channel, the price action is consolidating ahead of the 0.8540 figure. Upside tests reside at previous support floors at 0.8583 (23.6 percent fib level) and 0.8610
(38.2 percent fib level). Subsequently, formidable resistance lies at previous consolidation above the 0.8610 figure and may cause a failure of the momentous test. Although downside considerations are plentiful, upside notions remain as the current consolidation forms around the lower trend line.
EUR/CAD
Euro Weakness Abroad: Bearish momentum remains from the instability of monetary situation in the economy of Italy as positive data from the U.S. sparked further greenback momentum. Consumer spending in France doubled estimates by rising 1.1 percent while hourly wages remained strong in the Italian constituent. However, none could beat the might of the 4.1 percent growth witnessed in the world's largest economy for the third quarter. Rising the most in one and a half years, the current rate of expansion lends to confirmation of at least one more 25 basis point rate hike come next year. Additionally, the GDP Price Index, a measure of inflation, rose higher than expected at a 3.3 percent pace. With interest rates to rise, at least one more time, traders continued in their attempts to capture the widening interest rate differential. Ultimately, with broader euro weakness and an optimistic interest rate environment in Canada, the currency cross was yet another reflection of euro weakness.
Technically Speaking: Breaking through rangebound consolidation in the overnight, the EURUSD currency pair has knocked out support levels at 1.3878 (38.2 percent fib level from the weekly bear wave) and 1.3838 (23.6 percent fib level). Currently consolidating, further downside momentum looks to be in the works with subsequent floors at 1.3750 and the psychological 1.3700 figure.
Richard Lee is a Currency Strategist at FXCM.
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