Two trades to watch: EUR/GBP, USD/CAD

EUR/GBP rises after UK inflation jumps

The pound is struggling to find demand after UK inflation data showed that consumer prices jumped to a 41-year high of 11.1% YoY in October, ahead of forecasts of 10.7% and up sharply from 10.1% in September.

Inflation is over five times the BoE’s 2% target and adds pressure on the UK central bank to raise interest rates again in the December meeting. The market expects the BoE to raise rates by 50 basis points taking the benchmark rate to 3.5%.

The data comes ahead of the Chancellor’s fiscal statement tomorrow, where he is expected to raise taxes and cut spending, measures which will slam breaks on the economy and lower inflation.

The euro is heading higher as investors digest the latest developments regarding the Russian missile landing in Poland, a NATO member. Reports suggest that Ukraine knocked the missile off course, rather than Russia sending the missile to Poland, a move which would evoke Article 5 of the NATO agreement and a counter-response from NATO countries.

There is no high-impacting Eurozone data due today. Instead, a speech by President Christine Lagarde will be watched closely.

Where next for EUR/GBP?

EURGBP trades within a holding channel, capped on the upside by 0.8825 and on the lower side by 0.87. The RSI is at 50, neutral territory, offering few clues, so we could look for a breakout trade.

Buyers could look for a move above 0.8825 for further gains towards 0.8870, the October high, before bringing 0.90 into target.

On the flip side, a move below 0.87 could open the door to 0.8625, the 100 sma, and 0.8750, the October low.

USD/CAD tests 100 DMA ahead of Canadian CPI & US retail sales

USDCAD is heading lower for a second straight session, to 1.3250. The USD is trading under pressure after US PPI data yesterday supported the view that US inflation is cooling. US PPI slipped to 8% YoY in October, below 8.3% expected and down from 8.4%.

The data came following weaker headline and core CPI last week and as Federal Reserve officials suggest that the time could be approaching to slow the pace of hikes.

The loonie is finding little support from oil prices, which have fallen around 3% so far this week, after OPEC downwardly revised its oil demand outlook and as COVID cases in China rise.

Attention is turning to inflation data from Canada, which, after falling in September, is expected to hold steady at 6.9% YoY in October.

The BoC hiked rates by 50 basis points in the last meeting, and hot inflation could prompt another big hike.

In the US, retail sales are expected to rise 1% MoM as the US consumer continues to show resilience despite high inflation and rising interest rates.

Where next for USD/CAD?

USD/CAD has run into support at 1.3240, the 100 sma, and the July high. The RSI keeps sellers hopeful of further downside.

Sellers need to break below 1.3240 to extend the bearish trend towards 1.3080, the May high.

On the flip side, buyers will look for a rise over 1.3340, the weekly high, in order to target resistance at 1.3510, the October low, and 50 sma.