USD/CAD - Dollar Not Finding Support after Weak Retail Sales

All good things come to an end and so has the Canadian dollar’s recent strong run. South of the border, folks were celebrating Thanksgiving yesterday but north of the border, markets were very much open for business. With the focus on the success – or otherwise – of Black Friday, Statistics Canada brought investors the latest snapshot of retail sales during the month of September. Disappointingly, these figures rose just 0.1%, versus forecasts for a 1.0% m/m gain, after dropping 0.1% in August.

Receipts for the country’s retailers have been flat over the past four months, after one of the best starts to a year for the industry on record. This was the last major piece of output data ahead of third quarter Gross Domestic Product numbers next week, and is the second release this week that showed unexpected weakness in activity. StatsCan reported Tuesday that wholesale sales fell 1.2% in September. Economists are estimating annualized GDP growth of 1.8% in Q3, down from 4.5% in the Q2. Though the loonie fell on the news, it can hardly be described as a collapse: the U.S. pairing with the Canadian dollar is at $1.2720 in North America this morning, having touched a high of $1.2745. The loonie's pairing with the Australian dollar briefly touched 97 cents but starts the session around $0.9690

USD/CAD expected range: $1.2680 – $1.2750

After all the turkey and cranberry sauce yesterday, it’s time to get on with the serious business of shopping. 'Black Friday' is the day when it used to be said storekeepers finally moved out of the red to make some profits before year-end. Foreign exchange traders have been profiting recently by selling U.S. dollars though it had a steadier session yesterday. The U.S. dollar rose against the British Pound and Canadian dollar, fell against the euro and Aussie and was unchanged against the New Zealand dollar. With significant index weights also for the Mexican peso and Japanese yen, the overall impact of Thursday’s bilateral moves was to push the U.S. Dollar Index down another 10th of a point to 92.81. This is the lowest since October 13.

The overnight session in Asia has been pretty quiet though as the euro moved higher in the London morning, the index printed at a low of 92.76. A quick look at the charts shows the way is still clear for a test of the September 7 low at 91.0. The index is below its 20-,50-,100- and 200-day moving averages and the only noticeable area of technical support is the October 11 low at 92.58.

News reports today will doubtless be dominated by the success, or otherwise, of retail promotions and what they might mean for financial markets. A quick Google search this morning brought up 283 million results for 'Black Friday' so it’s going to be pretty difficult to ignore… For the near-term, however, it is likely to keep up the downward pressure on the U.S. dollar, whose index opens this morning at just 92.7.

Euro (EUR)

CAD/EUR expected range: $0.6600 – $0.6660

It has been a common theme of the last couple of weeks but, yet again, the euro opens higher after a very good set of economic data. This time it was Germany’s Ifo Survey; a highly regarded indicator of activity across the whole economy. The Business Climate Index rose to a new record high of 117.5 in November from 116.8 in October (around 90% of responses were submitted before the end of the "Jamaica" coalition talks on Sunday). This was due to far more optimistic business expectations. Companies’ assessments of the current business situation were no longer quite as positive as last month. The latest figures indicate economic growth of 0.7% in the fourth quarter, pointing to growth of 2.3% for 2017 as a whole.

In manufacturing, the index also hit a new record high thanks to far more optimistic expectations. Manufacturers slightly scaled back assessments of their current business situation, which nevertheless remain at a high level. A growing number of manufacturers plan to increase prices.In unusually exuberant language, the Ifo Press release said, "The German economy is on track for a boom."

EUR/USD has extended its gains to reach a high of $1.1865; its strongest level since the day of the European Central Bank council meeting back on October 26. EUR/CAD was on a $1.50 handle for the whole day on Thursday but has moved up to a best level of $1.5125 before opening today in North America around $1.5090. EUR/USD has extended Wednesday gains to reach a high of $1.1840 where it opens in North America this morning. EUR/CAD hasn’t quite kept pace but has held on to a $1.50 handle for the whole of the past 18 hours, opening today around $1.5015.

Great British Pound

CAD/GBP expected range: $0.5880 – $0.5940

The pound has rallied after a mini-wobble overnight which took it down to $1.3286 U.S. and $1.6905 Canadian. Prime Minister Theresa May is in Brussels today where an EU Summit is being held. She is scheduled to meet the president of the European council, Donald Tusk, at the end of the meeting. She told reporters: "These negotiations are continuing but what I am clear about is that we must step forward together. This is for both the U.K. and the European Union to move on to the next stage."

Stripping down a very complex issue here, the PM offered after a speech in Florence in May to pay a so-called "divorce bill" upon Brexit. A U.K. cabinet meeting on Monday agreed to increase the final settlement but only on condition that the EU guaranteed progress on to a second phase of talks at a European council meeting on December 14 and 15. The EU is in no mood to be rushed, feeling that it can extract a greater sum of money and a better deal for EU citizens’ rights. The EU insists on no border between the Republic of Ireland and Northern Ireland. But if it wins this, there will have to be a border between Northern Ireland and the U.K., something which the Prime Minister’s Coalition partners refuse to accept.For the sterling today, it’s probably a binary outcome. If the Prime Minister comes away with nothing, then the pound falls, but an agreement might see it extend this morning’s rally.

The pound opens in North America at $1.3315 U.S. and $1.6945 Canadian.