21 December 2017 at 15:11 GMT
- Knockout CPI release boosts CAD
- Yen lower on rising yields
- EURCHF rallies to cycle top
A strong CPI release sent CAD to a local peak, but the jury remains out
as to the rally's long-term strength. Photo: Shutterstock
By John J Hardy
Latest key developments in FX
- A very steady-as-she-goes Bank of Japan meeting amidst a backdrop of sharply rising global bond yields saw the JPY and CHF in the doghouse, with EURJPY and EURCHF teasing at highs for the cycle and USDCHF and USDJPY also remaining on the bid.
- The kiwi got a minor boost from a strong year-on-year Q3 GDP print, just after AUDNZD touched the 1.1000 area yesterday. That's an area we are looking at as a pivot zone that could catapult the pair higher if we trade back above in the days/weeks to come.
- CAD got a sharp boost in early North American hours from an almost absurdly strong November Canadian retail sales data point (+1.5% month-on-month) and as the headline CPI point beat expectations, even as the core number was a mere 1.5% year-on-year versus 1.7% expected. But USDCAD hasn't taken out the first local support as we discuss in the chart below, so the jury is still out on direction there.
USDJPY climbing lazily and not quite able to convincingly take out the Ichimoku daily cloud nor the start of the pivot zone defined by the prior major 113.75 high and then the ultimate long-standing range high into 114.50-plus. These levels could come under pressure if US yields continue their move higher.
Source: Saxo Bank
EURJPY teased to new highs for the cycle and could be ready for more if global rates continue higher (after all, European Central Bank bond buying slows by half starting in January) as the Bank of Japan announced today its intention to maintain its policy course for now, so any rate rises elsewhere transmit to the Japanese yen rather than the Japanese bond market once JGBs hit their yield cap (a mere few basis points from here in the 10-year JGB).
EURCHF having another go at making things interesting again with a rally to the cycle top near 1.1740 and then some. A follow-through likely requires another leg higher in global rates as well as a lack of fallout from today's vote in Catalonia. Next targets are 1.1800-plus and even into 1.2000.
USDCAD had been looking at the range top in recent sessions, but strong data from Canada today and a jolt to the Canadian short rate outlook from the data releases saw USDCAD all the way back close to the recent 1.2715 pivot, perhaps the last level of note ahead of the recent bigger pivot at 1.2625. Bulls will be discouraged unless we immediately pull back to close above 1.2900 in the sessions just ahead.
AUDNZD had a peek above the 1.1000 level before strong NZ growth data overnight, but we still prefer an eventual resolution higher... though the proving point would be a solid rally back well above 1.1000, which could finally set in motion a solid challenge back to 1.1300-plus.
Source: Saxo Bank
— Edited by Michael McKenna