Canadian Dollar Dips Slightly after CPI, Euro Rally Fades

Canadian Dollar is having a mild slump in early US session following lower-than-expected headline CPI reading. However, the currency’s slide was largely restrained, primarily due to the base-year effects of gasoline prices contributing to the deceleration in consumer inflation. Concurrently, Australian and New Zealand Dollars also experienced a slight dip amid mixed risk sentiment. Euro, after rising slightly earlier in the day, has softened marginally, as ECB officials re-emphasized the uncertainty regarding more monetary tightening beyond July.

In contrast, Japanese Yen and Swiss Franc are so far today’s better performers, with British Pound and Dollar following closely. Although US futures suggest a moderately lower open, persistence of stock market selloff remains uncertain. A shift in overall risk sentiment later in the session could potentially cause Dollar and Yen to turn lower again

On a technical note, while CAD/JPY is trying to resume the corrective fall from 109.48, downside momentum is so far weak. Indeed, some support could be seen from 38.2% retracement of 94.04 to 109.48 at 103.58 to contain downside, at least on first attempt. Break of 105.91 minor resistance will turn bias back to the upside for stronger rebound back towards 109.48 high.

In Europe, at the time of writing, FTSE is up 0.07%. DAX is down -0.08%. CAC is down -0.10%. Germany 10-year yield is down -0.093 at 2.389. Earlier in Asia, Nikkei rose 0.32%. Hong Kong HSI dropped -2.05%. China Shanghai SSE dropped -0.37%. Singapore Strait Times dropped -0.01%. Japan 10-year JGB yield rose 0.0066 to 0.487.

US retail sales rose 0.2% mom in Jun, ex-auto sales up 0.2% mom

US retail sales rose 0.2% mom to USD 689.5B in June, below expectation of 0.5% mom. Ex-auto sales rose 0.2% mom to 556.3B, below expectation of 0.3% mom. Ex-gasoline sales rose 0.3% mom to USD 637.0B. Ex-auto, gasoline sales rose 0.3% mom USD 503.8B.

Total sales for the April through June period were up 1.6% form the same period a year ago.

Canada CPI down to 2.8% in Jun, led by gasoline base-year effect

Canada CPI slowed form 3.4% yoy to 2.8% yoy, below expectation and back inside BoC’s 1-3% target range. On a monthly basis, CPI edged up 0.1% mom down from May’s 0.4% mom.

Statistics Canada noted, “While deceleration was fairly broad-based, another base-year effect in gasoline prices led the slowdown in the CPI.” Excluding gasoline, CPI slowed from 4.4% yoy to 4.0% yoy.

Grocery prices at 9.1% yoy and mortgage interest costs at 30.1% yoy were the biggest contributor to CPI increase. Ex-food CPI was at 1.7% while excluding mortgage interest costs, CPI was at 2.0%.

CPI median decelerated from 4.0% yoy to 3.9% yoy, above expectation of 3.7% yoy. CPI trimmed slowed form 3.8% yoy to 3.7% yoy, above expectation of 3.6% yoy. CPI common slowed from 5.2% yoy to 5.1% yoy, above expectation of 5.0% yoy.

ECB Visco: Inflation may come down faster

Talking to Bloomberg TV, ECB Governing Council member Ignazio Visco said, “Since we have also been observing a substantial reduction in energy prices, we have to expect that this will be seen also in underlying inflation in the coming months, certainly by the end of the year.”

Visco also suggested the possibility of a quicker pace than initially forecasted by ECB, saying, “The ECB projects that by the end of 2025 there will be 2% — my impression is that it might be faster.”

Visco cautioned against the risks associated with making excessive adjustments, stating, “There is a risk of doing too much and I think that we have to be careful about that.” However, he also noted the potential risk of doing too little, emphasizing the need for balance and judicious decision-making based on incoming information.

Meanwhile, another Governing Council member Klaas Knot expressed his perspective on potential policy adjustments beyond July. “For July I think it (rate hike) is a necessity, for anything beyond July it would at most be a possibility but by no means a certainty,” Knot said. He urged careful monitoring of the data from July onwards, to assess the distribution of risks surrounding the baseline.

RBA Jul minutes: Hike considered, hold to reassess in Aug

Minutes from RBA’s July 4th meeting reveal that two options were considered: raising cash rate by additional 25 bps, or keeping it unchanged. RBA eventually chose the latter, acknowledging the “uncertainty around the outlook and the significant increase in interest rates to date.” Members agreed to “reassess the situation at the August meeting.”

Despite maintaining status quo, RBA members acknowledged the possibility of future policy tightening. “Members agreed that some further tightening of monetary policy may be required to bring inflation back to target within a reasonable timeframe, but that this depended on how the economy and inflation evolve,” the minutes read.

RBA’s decision underscores the central bank’s caution amid shifting economic conditions. With August meeting on the horizon, the Board anticipates additional data on inflation, the global economy, labor market, and household spending. This incoming information, combined with updated staff forecasts and a revised risk assessment, will guide the next policy decision.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1211; (P) 1.1230; (R1) 1.1257; More…

Immediate focus is now on 1.1273 fibonacci level in EUR/USD. As upside momentum is diminishing as seen in 4H MACD, upside could be limited by 1.1273. Break of 1.1202 minor support will indicate short term topping, and turn bias back to the downside for deeper pull back. Nevertheless, sustained break of 1.1273 will extend larger up trend to 161.8% projection of 1.0634 to 1.1011 from 1.0832 at 1.1442 next.

In the bigger picture, as rise from 0.9534 extends, focus is now on 61.8% retracement of 1.2348 (2021 high) to 0.9534 at 1.1273. Sustained break there will solidify the case of bullish trend reversal and target 1.2348 resistance next. Meanwhile, outlook will continue to stay bullish as long as 1.0832 support holds, even in case of deep pull back.

Economic Indicators Update