October 29, 2021 15:42:49
We had a eurozone data dump earlier today with Q3 GDP expanding in line with expectations (+2.25 y/y). The flash CPI estimate surged more than expected in October with inflation above 4% and the core reading above 2%. But the market is more concerned with the outlook and the ECB response yesterday.
President Lagarde failed to push back on market rate hike expectations in accordance with the Governing Council’s wishes, as the stance on inflation remains highly uncertain. Ultimately, the December meeting is more important as the market will get to see the 2024 inflation forecasts. This will then give better guidance on when to expect higher rates.
In the meantime, the euro has paid the price and has been heavily sold today. The ECB will move at a glacial pace with hiking at least two years away, a year after the Fed. The bank’s neutral rate will be reached sooner than its peers.
EUR/CAD bearish consolidation below 1.44
Oversold indicators have eased after ten straight days of losses. But the cross retains a bearish undertone with prices failing to get above resistance at the September 2019 lows around 1.44. Buyers need to also push above the high of the current range around 1.4442. Then the May low at 1.4582, which would suggest a sustained recovery is in play.
The risks are pointing to consolidation going in the direction of the medium-term trend. That means a breakdown through the recent lows at 1.4293. The February 2020 bottom at 1.4263 would then be in sight.
EUR/CHF plummets through major levels
While we have warned in the past about SNB FX intervention, the market is selling EUR/CHF aggressively today on the back of bond market moves. A few key levels of support have been smashed through including the 1.07 zone and the August low at 1.0696, plus 1.0660 support.
Prices have collapsed today with the pair moving out of the bearish channel formed from the March highs. We’ve also seen a break of a prominent low around 1.06 though prices are trading back near this level at present.
We are not yet hugely oversold on the weekly chart. The size of the recent moves means we could move down towards the 2020 low at 1.0503. A rebound will need to get back above 1.0660 to slow the bearish momentum.
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