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    Hawkish Horizon for UK Employment

    Jobs Report Today to Set the Tone for the Pound

    After a report on UK inflation yesterday revealed the negative print that is often a sign of strain on economic growth, the British Pound began a course of decline that will most likely be affected by another report due later today concerning monthly employment numbers. Expectations see the report as hawkish, while unemployment may remain static at 5.50%.

    Alongside disappointing economic metrics from the United States, compounded by dovish minutes from the FOMC the dollar has taken drastic dives and has resulted in a boon for gold. Gold broke through the tough resistance level at $1160 and seeks to test the major $1200 pivot level. Commodities as a whole were seen to grow, though perhaps not as significantly as the precious metal. Reasons for the dovish tone in the latest FOMC minutes were worries over inflation and a hesitancy to act until problems in China spin themselves out. The latest economic data and global circumstances have several voting members switching camps, with Brainard and Tarullo both giving statements alluding to a desire to hold off on a rate hike, whereas previously they had both spoken in favor of a 2015 hike.

    Chinese data that does nothing to satisfy concerns over their ingrained economic problems comes in the form of today’s inflation data, which saw declines in CPI falling to August levels around 1.60%. This is down from the estimates of 1.80% and a far cry from September’s healthy 2.00% growth. Imports figures yesterday were also seen to fall, most likely due to today’s report that shows a -5.90% decline in producer prices on the back of commodity deflation. A prolific trade partner of China, Australia’s dollar declined as a result and is down for the second day in a row, following over a week straight of daily gains. Lows in USDJPY are slowly dissolving with a hesitant rise, as the People’s Bank of China moved to devalue the Yuan once more overnight by the largest amount in the last two months. Markets are currently speculating that further monetary policy easing measures may uncover themselves in the coming days.

    Inflation data from the UK was revealed as weak in yesterday’s report, not a surprise given the stubborn inflationary growth in the rest of the world. A decline in the metric of -0.10% pushed the Pound down -0.65% to close at 1.5246 down from 1.5380. Core inflation remained at 1.00%, similar to the headline inflation number from last month and spurring the newest MPC member Gertjan Vlieghe to assert his dovish views. He noted that the inflation numbers and outlook are enough to justify a potential rate cut in the future. Momentum for future monetary policy may also be affected by a meeting of estimates on the latest employment data from the UK, which is expected to float at 5.50% with average earnings to see a potential rise of 3.10%. Most likely to be affected by these upcoming numbers is the Pound, which has the opportunity to gain some ground on the USD before retail sales data releases this afternoon.

    USDCAD Head and Shoulders Trading Opportunity

    After a substantial downward correction from the bullish momentum experienced over the past few months, the USDCAD pair looks poised for a rebound following the sharp pullback in oil prices to the downside.  With Canadian policymakers forced to maintain their accommodative monetary policy stance amid the rout in commodity prices, the reality of the United States raising rates ahead of the northern neighbor might be enough to catalyze a sustained bullish trend in the USDCAD pair.  The emerging head and shoulders bullish pattern has an upside bias with ideal long positions initiated at the neckline at 1.2970 targeting resistance at 1.3069 marking the shoulder line.  A move below the neckline could be indicative that the correction is not yet over and sustained downward momentum is to be resumed.

    Resistance: 1.3018/1.3069

    Support: 1.2970/1.2926

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