The euro-dollar had been on a decline against the G10 currencies following the Italian budget saga and the strengthening US dollar. Specifically, the euro plunged against the Canadian dollar, mainly driven by the oil rally. However, the euro got some respite yesterday, following the release of better-than-expected French and Italian industrial data.
France, Italy economic data and oil price decline
Growth in French industrial production declined in August from the earlier month, as per figures released by the French statistical agency INSEE, but exceeded forecasts. Industrial output in August grew by 0.3%, compared to 0.8% registered in July. A survey conducted by Reuters had pegged August industrial production growth at 0.1%.
Likewise, Italy’s industrial sector surpassed market expectations in August, growing at the fastest pace since December 2017. According to the Italian National Institute of Statistics, Industrial production grew 1.7% m-o-m in August. Economists polled by Reuters had projected a growth of 0.8%.
On Monday, the Bank of France raised its 3Q18 economic growth outlook for the country, saying it now expects an economic expansion of 0.5%, an increase of 0.1% from the prior growth outlook.
In the commodity market, the US crude oil futures declined 2.4% lower as US equity markets broadly declined, even though energy traders were concerned about receding supply from Iran due to US sanctions.
Oil prices were down 2.77% to $72.88, a decline of more than $2 in a week. Similarly, the Brent crude was trading down 2.68% (-$2.28) at $82.72, representing roughly $2 under last week.
The decline in oil price was mainly due to an increase in inventories by 2.3 million barrels at the Cushing, Oklahoma site, the largest buildup since March 2018.
Commenting on the decline in the oil price, Christian Lawrence, a senior market strategist at Rabobank said: “I do think today is primarily an oil story, and the fact that Canada is a standout in the G10 makes sense because it is the G10 oil currency.”
Rising U.S. Treasury yields and the mounting US-China trade tensions would have a negative impact on global economic growth. Canada, which derives a major portion of its income from commodity exports, runs a current account deficit. As a result, its economy would be hurt if the international trade or capital flow slows down. Therefore, strong economic data strengthens the euro, while weakness in oil price and US-China trade tensions weakens the Canadian dollar.
Technically, the EURCAD pair has found support at 1.4880 as shown in the historical price chart. The money flow indicator is rising. Furthermore, the next resistance is expected only at about 1.5260. As a result, we can expect the EURCAD pair to move up in the short-term.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
