Weak Data Pressures EURUSD to 1.1400 – Will BOC Hike?

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Market Drivers October 24, 2018
EURUSD pushed to 1.1400 on weak PMI data
All eyes on BOC
Nikkei 0.37% Dax 0.28%
Oil $66/bbl
Gold $1230/oz.
Bitcoin $6600

Europe and Asia:
EUR Flash PMI 52.7 vs 53.9

North America:
USD New Home Sales 10:00
CAD BOC Rate Decision 10:00

Euro tumbled to two months lows today flirting with the 1.1400 figure in mid-morning Frankfurt dealing after EZ flash PMI readings badly missed their mark.

EZ Flash PMIs – the most recent gauge of economic activity on the ground slipped to a two year low with composite printing at 52.7 versus 53.9 eyed. The measure of Manufacturing activity in Germany dropped to 52.3 from 53.4 forecast approaching the key 50 boom/bust level.

The poor results raise fresh questions about the wisdom of ECB’s rush to taper monetary policy and return to normalizing rates. President Draghi appears eager to remove monetary stimulus, but the prospect of slowing economy in the region and the brewing fiscal budget clash with Italy could put undue pressure on credit in the EU and any move by ECB to tighten conditions could exacerbate the move.

In North America today the focus will be on the loonie as Bank of Canada is expected to raise rate by 25bp to 1.75%. With NAFTA II now done, the BOC won’t have any barriers to normalizing policy, but the question for the market will be the forward guidance of the central bank. If Governor Poloz sounds cautious going forward USDCAD could easily spike to 1.3200 on fears that further tightening may be on hold, especially given the slowdown in recent CAD consumer data and the decline in oil by nearly 10/bbl over the past several weeks.

Boris Schlossberg
Managing Director

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