Trading plan for 19/10/2018
Data from China were a slight disappointment, as GDP growth in the third quarter slowed to 6.5% y / y from 6.7% against the 6.6% forecast. In the commentary to the data, it was written that pressure on growth inhibition is growing in China. September retail sales increased by 9.2% y / y and industrial production increased by 5.8%. Despite this, problems with risk appetite are not over yet. Japanese Nikkei2225 loses further 0.7%. On the currency market the USD / JPY bounced from 112 to 112.50, AUD / USD is 20 pips higher at 0.7110, similarly NZD / USD increases to 0.6565. EUR / USD remains on weekly lowes at 1.1460 with Italy quoted as the main reason for the weakness of the euro. Recent comments from Brussels have reminded the Union’s dissatisfaction with the Italian budget project.
On Friday, the 19th of October, the event calendar will be busy only during the US session when Canada will publish Consumer Price Index and Retail Sales data. Moreover, the US will reveal the Existing Home Sales data as well. The are various speeches scheduled for today as well from BOJ Governor Haruhiko Kuroda, BOE Governor Mark Carney and FOMC Members Raphael W. Bostic and Robert Kaplan.
USD/CAD analysis for 19/10/2018:
Market participants expected the Canadian CPI to increase from -0.1% to 0.1% this month and the Retail Sales figures to increase as well from 0.3% to 0.4%. The CPI is the key gauge for inflation in Canada. Simply put, inflation reflects a decline in the purchasing power of the Canadian Dollar, meaning each Dollar buys fewer goods and services. CPI is the most obvious way to measure changes in purchasing power – the report tracks changes in the price of a basket of goods and services that a typical Canadian household might purchase. An increase in the index indicates that it takes more Dollars to purchase this same set of basic consumer items. As the most important indicator of inflation in Canada, Consumer Price figures are closely followed by Canada ‘s central bank. The Bank of Canada has a target inflation band of 1 – 3 % and uses CPI and Core CPI as its principle gauge (the Bank of Canada posts inflation targets and CPI on their homepage). A rising CPI may prompt the central bank to raise interest rates in order to manage inflation and slow economic growth. Higher interest rates make holding the Dollar more attractive to foreign investors, and this higher level of demand will place upward pressure on the value of the Dollar.
Let’s now take a look at the USD/CAD technical picture at the H4 time frame before the CPI data are published. The market has recently hit the technical resistnace zone located between the levels of 1.3078 – 1. 3113 and reversed slightly towards the nearest technical support at the level of 1.3018. If the data will be better than expected, then the market might drop lower and test that support or even break below it. On the other hand, if the data will be worse than expected, the bulls will likely try to move higher and try to break through the technical resistance zone. Please notice, the strong and positive momentum supports the bullish bias despite the overbought market conditions.