How long will the rebound on EUR / USD take? Beware of CAD pairs

Trust of US consumers

The Ifo index fell slightly above expectations. In turn, US housing prices in August fell slightly more noticeably. American consumer confidence has deteriorated more than expected by the market. Of course, the data did not result in a completely new economic picture emerging. The euro benefits due to relatively mild weather forecasts, well-stocked gas storage facilities in Europe, and falling energy prices.

Of course, the eurozone will not avoid recession, but its form may be milder than it was assumed until recently. On Thursday we have an ECB decision which should be hawkish. This additionally causes investors to start positioning before changing the parameters of the ECB's monetary policy.

On the other hand, the market reacts with great sensitivity to any signs that we can witness a fundamental reversal. This includes the risk that the Fed will shift gear and raise interest rates less aggressively in the foreseeable future. First of all, because the first signs of economic weakening in the US are already appearing. After Friday's Wall Street Journal reports, market expectations regarding the path of US interest rates have been reduced.

Eurodollar is above parity again

EUR / USD faces several further technical barriers. The parity is being broken this morning. Another resistance is level 1,0170 and then 1,0360.

Not only the EUR / USD exchange rate is close to parity again. Also EUR / CHF it is close to that level again. In this case, reduced risk for Europe's energy supply is likely to be the main driver. Recent warnings of the SNB that the bank will consider buying currencies in the event of the franc depreciation will probably slow down the rebound on the EUR / CHF to a small extent. The currency pair is approaching technical resistance in the region of 0,9970-1,00, but the theoretical extent of the inverted head and shoulders pattern suggests that the technical correction could become larger.

Higher volatility may appear on the Canadian dollar today. The BoC will decide on the level of interest rates. The market consensus assumes an increase by 75 basis points, although there are opinions that the institution will reduce the rate of increases (50 bp) due to the risk of recession. Canadian inflation data indicate sustained high price pressures. The CPI for September was above expectations, although a slight decline can be noticed as compared to the previous reading.

You can see that lower oil prices have brought some relief, but the base index still shows high levels. The market will probably watch the decision on interest rates closely, as well as the projections Bank of Canada in his new monetary policy report, which could lead to possible adjustments in interest rate expectations. Decision at 16 p.m. Any signal that the pace of further monetary tightening is slowing down is likely to weaken CAD.

Source: Łukasz Zembik, OANDA TMS Brokers