Euro Dips Mildly after Catalonia Elections, Dollar to Look into PCE

Canadian Dollar remains generally firm today but it’s overwhelmed by Aussie on commodity prices. Meanwhile, Euro trades mildly lower as results of the Catalonia regional election provide no resolution to the political crisis. Dollar again attempts to recover today but it’s trading in red against all others expect Yen for the week. The greenback will need some solid PCE inflation data if it’s going to have a sustainable rally.

Separationist parties triumph in Catalonia elections

With most votes counted for Catalan parliament snap election, the three pro-independence parties, Together for Catalonia (JxCat), Republican Left of Catalonia (ERC) and Popular Unity (CUP) together won 70 seats out of 135, two above majority and should be able to form a coalition government. However, they altogether got 2 fewer seats than in the 2015 election. The election result suggests a still-divided Catalonia and has done little to resolve the existing political crisis. Euro is mildly pressured on the news.

Odds of January BoC hike surged after data

Canadian Dollar was boosted by strong inflation and retail sales data overnight. After the two surprised rate hikes this year, BoC has turned cautious and thus market expectation for another hike in near term receded. But the set of solid data revived such speculations. OSI data are now pricing in close to 60% chance of a January hike and over 75% within Q1. But for the moment, USD/CAD is holding above 1.2598 key near term support. There is no confirmation of a reversal yet and Dollar would likely out-perform the Loonie.

Aussie strong on commodity prices

While Canadian Dollar was strong, it is being over-whelmed by Aussie, who’s trading as the strongest for the week. Traders seem to be banking on surge in commodity prices and its support to the Aussie. China steel futures extended gains for the second day today. The most active rebar futures rises over 2%. Iron ore price on the Dalian Commodity Exchange also rose 0.4%. Nonetheless, we’re still skeptical on the sustainability of Aussie’s rebound as RBA will likely hold interest rate unchanged next year, until they see upward pressure in wages.

On the data front

Germany will release Gfk consumer sentiment in European session. Swiss will release KOF economic barometer. UK will release current account balance and Q3 GDP final. Later in the data, Canadian Dollar will look into GDP for further strength. On the other hand, Dollar will look into personal income and spending, PCE, durable goods and new home sales.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.7667; (P) 0.7687; (R1) 0.7720; More…

AUD/USD’s rebound from 0.7500 resumed and reaches as high as 0.7718 so far. Further rally could still be seen. But it’s seen as a correction and upside should be limited by 0.7732 cluster resistance (38.2% retracement of 0.8124 to 0.7500 at 0.7738). On the downside, break of 0.7653 minor support will turn bias to the downside for retesting 0.7500. However, sustained break of 0.7732 should invalidate our bearish view and bring stronger rise through 61.8% retracement at 0.7886.

In the bigger picture, corrective rise from 0.6826 medium term bottom is likely completed at 0.8124, after hitting 55 month EMA (now at 0.8034). Decisive break of 0.7328 key cluster support (61.8% retracement 0.6826 to 0.8124 at 0.7322) will confirm. And in that case, long term down trend from 1.1079 (2011 high) will likely be resuming. Break of 0.6826 will target 61.8% projection of 1.1079 to 0.6826 from 0.8124 at 0.5496. This will now be the favored case as long as 0.7732 near term resistance holds.

Economic Indicators Update