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Euro Crosses Extend Decline As Softer Inflation Backdrop Weighs

FOREX
  • The softer-than-expected inflation data from the Eurozone this week continues to weigh on the single currency to close the week, with particular weakness being seen against more risk sensitive G10 currencies such as AUD and NZD. Additionally, the weaker ISM Manufacturing PMI figure from the US and Fed Chair Powell acknowledging risks are more balanced have prompted 2-year Tsy yields to shift around 10bps lower on the session, adding some extra impetus for JPY bulls.
  • While the primary uptrend in EURJPY remains intact, a corrective cycle has resulted in a move lower this week. The downside correction accelerated into the Friday close, with the 50-day EMA giving way at 160.38. For now, the pullback stalled at the simple 50-dma of 159.80, but the Friday candle makes for a bearish close on the week. 159.38 would be the next downside target of note.
  • Stronger than expected employment data from Canada has also benefited the Canadian dollar to finish the week, with USDCAD slipping below 1.3500 for the first time since late September. Price action reinforces the overriding bearish theme and the recent break of trendline support, drawn from the Jul 14 low, strengthens the current downtrend and signals scope for a continuation lower near-term.
  • The Swiss Franc has also extended its impressive move higher amid the softer core yields. EURCHF briefly traded at 0.9450 and continues to narrow the gap with the October lows at 0.9417. Swiss CPI is the only notable data point on Monday.
  • Elsewhere next week, US ISM Services PMI takes focus on Tuesday and will be flanked by central bank rate decision from both the RBA (Tues) and the BOC (Wed).
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