China imports rise boosts commodities while ECB QE report hits euro
Fawad Razaqzada October 13, 2017 7:48 AM
The euro has eased off across the board on a Bloomberg report that the European Central Bank may reduce its bond purchases to €30 billion per month from January and simultaneously extend the duration of the QE programme by another nine months to at least September 2018. The ECB has not denied this story yet. Investors are taking no chances. If the story is true, it would mean low rates for longer, which in theory should be negative for the euro. In fact, the EUR/USD has already eased back to 1.1820 – not a massive move, but it could roll over in the event today’s US CPI and retail sales data comes out ahead of forecasts. Meanwhile the EUR/GBP has dropped below 0.8900, while the EUR/JPY has fallen to 132.50.
Chinese imports of oil and iron ore surge
The euro has come under even more pressure against commodity currencies, which have been strong owing to rising metal and oil prices. The fact that China published a strong 18.7% year-over-year rise in September imports overnight suggests demand for commodities in the world’s second largest economy remained robust. Indeed, inward shipments of iron ore rose more than 10% year-on-year in September to a record 102.8m tonnes, while crude oil imports hit 9 million barrels per day, above the 8.5 million bpd average between January and September. China thus remains the world’s biggest oil importer, and this is helping to further support oil prices today.
EUR/CAD could be on the verge of a drop
With the euro under a bit of pressure from the ECB sources story and Canadian dollar getting a boost from oil prices, the EUR/CAD could be on the verge of a sharp move lower in the coming days. This pair has been trending lower since hitting a peak of 1.5260 in early June. The move down has been supported by the Bank of Canada turning hawkish, before it twice raised interest rates. So far, though, the losses have been fairly limited. After all, price remains above the still-rising 200-day average.
But that could change soon if the euro selling gathers momentum. Recent price action suggests rates want to move lower, as indicated for example by price creating lots of traps for buyers as shown on the chart. The latest such trap may have been formed on Wednesday when its attempt to break above old resistance circa 1.4805 failed to materialise into a rally. The EUR/CAD ended Wednesday’s session lower after giving up its entire gains. This could well have been a key reversal day. The low of Wednesday’s range was around 1.4765, a level which has turned into resistance in this second half of the week. The EUR/CAD’s move lower may accelerate if support at 1.4640 gives way soon. If so, we could then see a sharp drop below the double bottom low of around 1.4450, where a potentially large pool of resting sell orders may pull price towards it, eventually. This bearish idea would be put on hold in the event price moves back above 1.4765 on a daily closing basis.
Source: eSignal and FOREX.com.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.