USDCAD Open 1.1162-65 Overnight Range 1.1065-90
Loonie Rides the Loop De Loop
The loonie is riding the Loop-de-Loop and traders are hard pressed to keep from hurling. The USDCAD triggered stops on the break of 1.1120 during the European session and climbed to 1.1190 on anticipation of weak Canadian data releases today. They were half right. The Consumer Price Index (CPI) handily beat forecasts, rising to 1.5 percent year over year, (forecast 1.3 percent) and diminishing the risks of an interest rate cut for those actually believing that a cut is a possibility.
Chart Canada CPI
Retail Sales, on the other hand, were weak, dropping 1.8 percent in December vs. forecasts for a mere 0.4 percent decline. Extreme weather conditions are cited as a key factor for the miss. The USDCAD reacted predictably to the news dropping from 1.1170 to 1.1135 as weak intraday long dollar positions got squeezed.
Week in Review-Snapshot
Canada and the USA returned from a holiday weekend on Tuesday with sterling in the spot light due to a host of data releases (CPI, PPI and Retail Sales) while EURUSD traders had to contend with ZEW surveys. The FX activity following the data proved to be just "noise" with traders looking ahead to Wednesday’s Federal Reserve Open Market Committee (FOMC) minutes. The minutes didn’t provide any new information but the US dollar caught a bid. Part of the reason may have been because the FOMC members were discussing interest rates. Although that shouldn’t be surprise, since the next move is up, traders may have been spooked. The loonie also got sucker-punched. The USDCAD appeared to be well offered at the start of the North American session but shortly after 8:30 am USDCAD started moving higher blowing stops at 1.0960 and 1.1020 and it never looked back losing about 1.4 percent in a day. It still hasn’t recovered. A soft HSBC China PMI print reopened concerns that the slowing Chinese economy will have a negative impact on global growth adding to the downward pressure on the loonie and other commodity currencies on Thursday. The Friday session was understated except for USDCAD with the rest of the major’s content to wallow within recent ranges.
US Dollar index may be on the move
The US dollar has strengthened against all the majors this week with the exception of EUR and CHF. The US dollar index (DX) February decline appears to have bottomed out at 80.00 and is attempting to crack the 80.47 resistance area; if successful it would confirm that a new US dollar uptrend is in place. A failure to move higher would lead to more choppy range trading among the G-7 currencies.
USDCAD-The struggle within
This week’s sharp reversal from the USDCAD low’s at 1.0910 made it crystal clear that the underlying Canadian dollar sentiment is negative yet today’s CPI data should introduce an element of uncertainty to the view. A core tenet in the USDCAD bull’s bible is that the Bank of Canada’s focus on inflation readings persistently below target meant an increasing probability of an interest rate cut. Today’s data should have seriously damaged that notion. The recent weak Canadian economic data has a lot to do with the nasty winter weather, the same as the US and it has done a good job of masking the health of both economies. The loonie appears to have decoupled from WTI as it isn’t getting any benefit from the firm oil prices. Consequently, the loonie shouldn’t be punished by the latest setback in the XL pipeline approval process due to a Nebraska judge’s ruling. There isn’t a bunch of truly actionable data from the US or Canada next week until Thursday with Durable goods on tap as well as a speech by Janet Yellen. As a consequence, USDCAD should be trapped within a 1.1060-1.1200 range. Friday could be another game changer with a slew of important US data due as well as Canadian GDP and the usual month end rebalancing shenanigans.
USDCAD Technical Outlook.
The USDCAD short term technicals are bullish following the break of 1.1060 with a short term uptrend intact above 1.1130. A move below 1.1130 would negate the uptrend and lead to a return to the breakout level. A break of today’s high at 1.1190 should put the focus back on the 1.1224-50 resistance zone. Only a move below 1.0850 negates the medium term uptrend. For the week, USD support is at 1.1130, 1.1090 and 1.1060. Resistance is at 1.1190, 1.1220 and 1.1250