European Open: CAD/JPY holds steady ahead of Canada’s CPI report

Asian Indices:

Australia's ASX 200 index rose by 79.7 points (1.19%) and currently trades at 6,799.60
Japan's Nikkei 225 index has fallen by 110.84 points (-0.4%) and currently trades at 27,678.49
Hong Kong's Hang Seng index has risen by 251.22 points (1.35%) and currently trades at 18,817.19
China's A50 Index has risen by 25.65 points (0.2%) and currently trades at 13,151.32

UK and Europe:

UK's FTSE 100 futures are currently up 43.5 points (0.6%), the cash market is currently estimated to open at 7,280.18
Euro STOXX 50 futures are currently up 12 points (0.34%), the cash market is currently estimated to open at 3,511.49
Germany's DAX futures are currently up 66 points (0.51%), the cash market is currently estimated to open at 12,869.24

US Futures:

DJI futures are currently up 62 points (0.2%)
S&P 500 futures are currently up 31.25 points (0.26%)
Nasdaq 100 futures are currently up 8.75 points (0.22%)

Equity markets were mostly higher overnight with the Hang Seng taking the lead following reports that Hong Kong leaders have agreed a way to begin removing all quarantine measures (but only after ‘proper preparation’).

Sweden are expected to match the ECB’s 75bp hike today, taking rates from 0.75% to 1.5%. And that would be their highest rate since July 2012 if they do. And economists also favour the SNB to also hike by 75bp on Thursday to 0.5%.

Japan’s inflation reached a near eight-year high, making it the fifth consecutive month for it to remain above the BOJ’s 2% target. Yet its unlikely to see the BOJ later their ultra-dovish policy this week, although the longer inflation trends higher above their target, the great the pressure becomes for them to act.

Canada’s inflation report is in focus at 13:30 BST

Further signs of disinflation are forecast to appear for some of the headline prints. CPI is expected to fall to 7.3% y/y from 7.6% - which would be its lowest annual level since April. Inflation is also expected to contract by -0.1% m/m – which would be its first negative print in eight months and third consecutive lower print. Placed alongside the deceleration of producer prices it is indeed a positive sign. However, take note that the BOC pace closer attention to the common, median and trimmed CPI’s – which are slower moving tan the underlying headline prints. But if headline inflation is moving lower then it is only a matter of time for their preferred measures to follow.

Common and median CPI are expected to remain stable at 5.5% y/y and 5.0% y/y respectively, and trimmed mean is expected to rise to 5.5%. And that is likely to keep the average of these tree at a record high.

CAD/JPY 4-hour chart:

CAD/JPY has been within a retracement phase since the 110.59 high, although it has stalled around a cluster of support between 107.50 – 108 (July high, 38.2% Fibonacci level, monthly R1 pivot point). Were it not for the support zone we’d focus on the bearish trend (and this could still provide a bearish opportunity on the 1-hour timeframe or below). But on this timeframe we’d want to see a break beneath 107.45 before assuming trend continuation.

But if momentum turns higher then the bias remains bullish above 107.45 and for an initial move to 109.17. But appetite for risk also plays a part here, so a soft inflation report coupled with weaker equity markets could send this market lower.

Economic events up next (Times in BST)

German producer prices are expected to have risen 1.6% in August, down from 5.3% in July. Yet with an annual rate above 37% it is hard to get excited until we see a sustained period of deflation on the monthly prints. And that’s not likely to occur until we see stability in the natural gas and electricity markets.
US housing data is expected to show that builders permits and housing starts have continued to fall as higher interest rates continue to bite.
And central bankers are at the helm with ECB’s McCaul speaking at 16:145, Lagarde at 18:00 and a BOC deputy governor at 20:45.

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