Risk sentiment got a boost on late Thursday/early Friday last week, after UK Tories won a decent majority in the British Parliament after the elections, while US and China agreed on the Phase One deal. Risk assets such as stock markets and commodity Dollars surged higher, while safe havens retreated lower. But, the situation still remains uncertain, with several major trade issues still  unresolved between US and China and the UK heading towards the EU, probably without a trade deal if they can’t strike one until the end of 2020. So, markets have remained cautious since early Friday.

Although, we are seeing some positive sentiment in financial markets today, after some positive economic numbers. German Ifo business climate improved more than expected today and last month was revised higher as well. In UK, inflation has been weakening in recent months and it was expected to tick lower again in November, but remained unchanged, which was a bit of a relief, but the GBP continues to slide lower after the election bonanza. Canadian inflation ticked lower for November, but the annualized figures were stronger, which pushed the CAD higher.

The European Session

• German Ifo Business Climate – Business climate has been deteriorating in Germany for quite some time, as the German and Eurozone economy continued to weaken. But, it bottomed in August at 94.3 point and has been improving slightly since then. Last month, Ifo business climate stood at 95 points but was revised a tick higher today to 95.1 points. The sentiment was expected to improve again to 95.6 points, but it came even better at 96.3 points for this month.
• UK CPI Inflation Report – As mentioned above, inflation has been weakening in Britain since topping at 2.1% back in August. In October, CPI (consumer price index) fell to 1.5% and it was expected to decline again today to 1.4%. But, it beat expectations, remaining unchanged at 1.5%. UK house prices increased by 0.7% in the year to October 2019, down from 1.3% in September 2019.
• Ifo Economists Don’t See Light at the End of the Tunnel for German Industry – Ifo economist, Klaus Wohlrabe, commented after the survey results earlier, saying that German industrial sector is still in recession, will take a while to get out of it. Although, the German economy is heading into the new year with more confidence. There are signs that US-China trade conflict is easing. German exporters are pleased about that. UK election result ensures more clarity around Brexit.
• Von Der Leyen Warning the UK of A No-Deal Brexit Scenario – European Commission president, Ursula von der Leyen was speaking a while ago. She said that a cliff-edge Brexit will harm UK more than it would the EU. If there is no trade deal by the end of 2020, we will face a cliff-edge Brexit. We will make the most of the time available. Ready to start talks with UK on trade deal on 1 February
• ECB’S Coeure Speaking on Inflation – Departing ECB governing council member, Benoit Coeure said today that lowering inflation target would be wrong. below are some further comments from him:
  • ECB actions have been effective
  • No doubt ECB can ease policy further with current tools
  • Central banks may have to navigate in a low growth, low inflation environment
  • ECB should clarify that the medium-term inflation goal is 2%
  • ECB could communicate a tolerance band for inflation
  • But tolerance band is not an invitation for inaction, complacency
  • ECB could communicate the range of inflation outcomes that can be considered as acceptable in normal times

The US Session

• Canadian CPI Inflation Report – Inflation has been pretty volatile in Canada in recent months, turning positive and negative from month to month. Today’s report was expected to show a 0.1% decline in CPI and inflation did decline last month. But, the annualized numbers were stronger. YoY CPI moved higher though, at +2.2% vs +2.2% expected, up from 1.9% in October. Common CPI remained unchanged at 1.9% against 1.9% expected, as previously. Trimmed mean CPI YoY ticked higher to 2.2%, as expected, up from 2.1% previously. Median CPI also increased to 2.4%, against 2.2% expected. In October,median CPI stood at 2.2% but was revised higher to +2.3%. So, CPI declined in November by 0.1% but median core CPI number is the highest since 2009.
• FED’s Williams Speaking – FED’s Williams was speaking on CNBC just awhile ago,saying that he feels good about where the economy is going. Below there are more comments from WIlliams:
  • 3.5% unemployment is in a very good place
  • don’t want to see unemployment move up
  • economy performs really well this year
  • sees growth around 2% next year
  • feels good about where the economy is going to be next year and expects inflation to move closer to percent target
  • monetary policy is accommodative and sporting monetary growth
• New Zealand Q3 GDP Report –  The GDP report released in December last year showed that the figure for Q3 was expected to come at 0.6%, which would be a cooling off from the previous quarter. But, it surprised us when it came at 0.3%. Although, it reversed and increased by 0.6% in Q4 of last year. This report will be for Q2 of 2019. The economy has slowed in Q2, but in Q1 it was pretty upbeat, expanding by 0.6% for the second quarter in a row. In Q2, the economic growth in New Zealand was expected to slow down again, this time expanding by 0.4%, but came in at 0.5%, where it is expected to remain in Q3 as well, when the report gets released late in the evening.

Trades in Sight

Bearish USD/CAD

• The trend has ben bearish all month
• The pullback higher is complete
• The 50 SMA reversed the price lower

The retraced ended below the 50 SMA

On Monday we opened a sell forex signal in USD/CAD , as this pair was retracing higher. The trend has been bearish since the beginning of this month, after OPEC+ decided to cut Crude Oil production again, by an additional 50k barrels/day, which helped Oil price climb higher, as well as the CAD, since this currency is closely correlated to Crude Oil.

We decided to go short on this pair , although we should have waited a bit longer, since the pullback continued further to the upside. Now, the price has reversed and USD/CAD is heading towards our take profit target after the inflation report was released. In October,median CPI stood at 2.2% but was revised higher to +2.3%. So, CPI declined in November by 0.1%, but median core CPI number is the highest since 2009. The CAD is climbing higher, which means that USD/CAD continues to slide lower.

In Conclusion

Markets have been cautious since Friday, waiting to see how things will evolve, after the UK elections and the Phase One deal. Most major assets have been trading sideways as a result, but we are seeing an improvement in sentiment right now and risk assets are climbing higher.