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USDCAD breaks out of a pennant after bullish CPI and retail data

March 22, 2014 in Forex Fundamentals and News

Figures released yesterday by Statistics Canada show that the Core Consumer Price Index for February 2014 rose 1.2% on a year-on-year basis, surpassing market forecasts of 1.1%. Though ahead of expectations, the reading was still well below the bank’s inflation target of 2%.

CPI data

The core CPI is defined by the bank as the CPI (the headline inflation index) less eight of the most volatile components (fruit, vegetables, gasoline, fuel oil, natural gas, mortgage interest, inter-city transportation and tobacco products) as well as the effect of changes in indirect taxes on the remaining components.

The Consumer Price Index for February 2014 climbed 1.1% on an annualised basis versus market expectations of 1.0%.

“The smaller year-over-year rise in the CPI in February compared with January was mainly attributable to gasoline prices, which fell 1.3% in the 12 months to February, following a 4.6% increase in January. On a monthly basis, gasoline prices rose 2.3% this February, a smaller increase than in the same month a year earlier (+8.4%),” clarified the report from Statistics Canada.


Retail sales

The country also posted encouraging data on retail sales, which grew 1.3% on a month-on-month basis during January 2014, surpassing estimates of 0.7% growth by a comfortable margin.

“Retail sales rose 1.3% to $40.7 billion in January, partially offsetting the decline in December. Gains were reported in 7 of 11 subsectors, representing 83% of total retail sales,” said the report from Statistics Canada.

Effect on the USDCAD

The twin data, which came out better than expected, led to a jump in the USDCAD pair.

We note in the chart below that the pair has broken out of a pennant formation and may be headed higher.

usdcaddaily-close of-210314

It is significant how the 50-day moving average has provided strong support to the pair on three recent occasions, shown by the Up arrows.

Data Out of China Continues to Disappoint, But May Not Indicate Hard Landing

March 13, 2014 in Forex Fundamentals and News

China’s scored somewhat of an unfortunate hat-trick today.

Three pieces of economic data released today by the Asian powerhouse all missed market consensus handily.

Industrial production

Year to date industrial production (February) grew only 8.6% compared to analysts’ forecasts for 9.5%, and 9.7% during the year ago period.

According to analysts industrial production in China may be hampered due to rising inventories and the higher interest regime prevailing in the country since last year, as Chinese regulators crack down on a credit bubble and shadow banking infrastructure.

An inkling of this data was probably indicated by the sharp fall in copper prices witnessed in the past few days across the globe. Prices of iron ore, too, have been on a downtrend.

Retail sales

Year to date retail sales (February) grew 11.8% compared to market expectations of 13.5% and the previous period figure of 13.1%.

According to one view, retail sales in China could have been adversely affected by an environment of disinflation and a drive to weed out corruption at all levels.

The deceleration in retail sales, an important indicator of spending patterns in the economy, adds another supporting dimension to the growing opinion that China is gripped by an economic slowdown.

Fixed assets expansion

Year to date urban spending on fixed assets grew 17.9% against consensus expectation of 19.4%. The year ago period showed growth of 19.6%. The soft data indicates the downward pressures on the Chinese economy.

Though the above data points do raise concerns about the Chinese slowdown, analysts are still optimistic and say it is only that, and not a hard landing. It may be noted that the country still hopes to grow GDP by 7.5% during 2014, though the Chinese leadership has obliquely hinted that it may not be unduly worried if the target is not met.

Earlier this week, media reports suggested that the People’s Bank of China was prepared to adopt an easier monetary policy in the event economic growth slowed too much.

Recent Chinese Economic Data

January 18, 2013 in China

Chinese data out in the past few days gives some cause for comfort.

Positive statistics covering retail sales, the housing market and industrial production indicate the country may be emerging from its economic trough, and their confluence probably provided a much-needed push to GDP growth.

GDP grew 7.9% year-on-year during the last quarter of 2012 and was ahead of analysts’ consensus forecast of 7.8%. On a full-year basis, however, the Chinese economy grew only 7.8%. This was the lowest rate of growth witnessed in 13 years, though it is still hugely better than that seen in other countries.

In the housing market new home prices showed a rising trend with data showing that 54 out of the 70 cities that were surveyed in December saw better prices for new homes.

December also saw much better industrial production which rose to 10.3%. This was the fourth consecutive month that the indicator showed positive growth.

In another positive reading retail sales during the month of December climbed 15.2% higher on a year-on-year basis.

On a disturbing note, however, the National Bureau of Statistics broke its more-than-decade long silence on statistics relating to income inequality in China. The commonly used statistic, the Gini coefficient, read 0.474 for 2012, and is considered a high reading of income inequality. It has been falling from a high of 0.491 in 2008, and read 0.477 in 2011. 0.400 is a cut-off level beyond which income inequality can cause serious social protest.

Today’s Economic Events And The Age Old Game of Technical Indicators

November 14, 2012 in Forex Analysis

USD/CHF has been continuously failing for past 4 days at or below 200-day Moving Average resistance. Out of these 4 days, 3 days made us witness the classical example of 200-day moving average power when the currency pair failed just after touching that level.

Similar pattern has been with EUR/USD where the pair kept on finding support at it’s 200-day moving average for past 2 days.

Today is a day of some important economic events. Before  going to what is on plate today, the current daily chart of both the currency pairs are as follows:

USD/CHF Failing At 200 Day Moving Average

USD/CHF failing at  200 day moving average resistance

EUR/USD Gaining At 200 Day Moving Average

EUR/USD gaining at  200 day moving average support

Today’s Economic Events:

European Monetary Union and Switzerland:

  • Europe: Both year on year and month on month change in the Industrial Production will be released at 10:00 GMT today.
  • Switzerland: ZEW Survey report for expectations is scheduled to come out at the same time i.e. GMT 10:00 today.


  • Producer Price Index reports will be released at 13:30 GMT.
  • At the same time i.e. at GMT 13:30 we will also have Retail Sales reports.
  • At 15:00 GMT U.S. Census Bureau will release the data for monthly percentage change in business inventories with manufacturers, wholesalers and retailers. This report does not cause major moves but in an uncertain market  every report is important.
  • The most important event for today from U.S. is the FOMC (Federal Open Market Committee) meeting’s minutes of one of the 8 meetings held annually. market will be waiting for these minutes to see the reviews of current financial and economic conditions and monetary policies for the future economic growth and stability of prices. FOMC meeting minutes are due at GMT 19:00.

What to Expect From These Currency Pairs with Strong Negative Correlation:

The way 200-day EMA has been proving to be a resistance for USD/CHF and support for EUR USD during recent days, calls for some consolidation. Overall any consolidation for USD CHF up to 0.9500/0.9410 would be natural. Similarly EUR/USD may consolidate towards 1.2790 or even 1.2835/1.2840.

For both these currency pairs such consolidations may be taken as normal with the expectation of another fall. However any decisive breaks of these levels may change the short-term outlook for some time.

Today especially FOMC meeting may cause some increased volatility.

Chinese Economic Data – Encouraging Signs

November 12, 2012 in China

With the Japanese and the Euro-zone economies in the doldrums, and the fragile economic recovery in the US in grave danger from the ‘fiscal cliff,’ the fast-developing economies out of Asia will probably do the heavy lifting as far as global growth is concerned.

The Chinese economy has been a powerhouse of growth this decade, but of late there have been troubling signs of a slowdown in growth. The economy contracted over the last seven quarters on the trot – with growth down to a low (for China) 7.4% during the September quarter. Chinese policy-makers responded by implementing growth-oriented policies over the recent months, such as the lowering of the benchmark interest rate (twice) and reduction in the reserve requirement ratios (also twice).

In this backdrop, the recent economic data out of China has been comforting, to say the least.

October Exports

China delivered a resounding beat on estimates of its export performance for the month of October. Exports grew 11.6 % whereas analysts expected only 10% year-on-year.  This was the fastest rate of growth seen in five months.

The data led analysts to jettison fears of a ‘hard landing’ for the Chinese economy, and crank up their estimates for growth during 2013.

October imports

Imports by the Chinese economy were flat at 2.4% on an annual basis, and missed economists’ expectations of 3.2%. Interestingly, higher imports of agricultural products such as corn and edible oil counterbalanced declining imports of iron ore.

October trade balance

Higher exports and unchanged imports led to the trade surplus increasing to $31.99 billion compared to the previous reading of $27.67 billion and the $27.15 billion expected. This is the highest trade surplus recorded since January of 2009.

Consumer Price Index (October 2012)

China’s main gauge of inflation, the Consumer Price Index fell in October to 1.7% on an annual basis, the lowest reading seen in 33 months. The reading was down from 2% in August and 1.9% in September. The main reason for the fall was apparently food prices, which showed a lower trend.

The declining trend in inflation is an encouraging sign for the economy, as it strengthens policymakers’ hands in the pursuit of growth by lowering the interest rate regime, or other monetary easing or incentive measures.

Controlled inflation probably led to the People’s Bank of China pumping in a record amount of cash flow during the week ended November 1. Using repo operations the bank injected 379 billion Yuan as additional liquidity, an all-time weekly high, into the economy.

Producer Price Index (October 2012)

Chinese inflation at the wholesale level is measured by the Producer Price index. For October the PPI showed a fall of 2.8% on an annual basis compared to 3.6% in September. This was the eighth consecutive month for a decline in the PPI. However, since the rate of decline appears to be slowing, analysts are of the view that the economy may now be stabilizing. A declining wholesale inflation is also positive for the economy.

Fixed Assets Investment (October 2012)

Chinese fixed asset investment climbed 20.7% year-on-year to 29.25 trillion Yuan (about US$4.6 trillion). This was better than analysts’ expectations of 20.6% and the previous reading of 20.5%. The rising investment trend is a plus point for the economy

Industrial Production (October 2012)

After printing 8.9% in August, and 9.2% in September, the Chinese economy reported a heartening industrial production reading in October of 9.6% growth, beating expectations of 9.4%. This is likely evidence that the economy may have bottomed out after the downward trend seen over the last three years.

Retail Sales (October 2012)

In another encouraging sign of strength in the domestic economy, Chinese retail sales during October increased 14.5% compared to the same period last year, to 1.89 trillion Yuan and was the highest seen since March. Interestingly, the growth was more or less even between the urban and rural sectors – urban consumption rose 14.5% whereas the ruler population consumed 14.8% higher.

China Central Bank Outlook

The Chinese central bank reviewed the economy at its third-quarter monetary policy meeting and said, “Current economic and financial operations have shown signs of stabilizing and consumer prices are basically stable.” The statement of the bank also said it would continue to use monetary means for growing credit in the economy at a reasonable pace, and in line with objectives of social financing. However, it expressed concern over the likely import of inflation due to the massive monetary easing measures in the US and European economies. In sum the bank said, “We will continue to implement the prudent monetary policy, make it more targeted, flexible and forward-looking, while fine-tuning it according to the economic situation development.”

China – What to Expect

Looking at the above data trend, it does appear that the Chinese economy may be turning around, slowly, just like a huge tanker that takes a while to change course in the other direction. Rising exports, manufacturing and retail spending in an environment of relatively flat inflation and a dovish central bank stance lead us to the hopeful conclusion that China may yet return to its normal growth levels and lend a hand supporting global growth.

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