USD/CAD in focus ahead of Canadian CPI, retail sales
James Chen, CMT May 17, 2018 2:04 PM
After a moderate pullback last week on soft US inflation readings, the US dollar has rebounded strongly this week to resume and extend its rising trend that has been in place for the past month. This strong rebound and recent overall support for the US dollar have been driven in part by rising interest rate expectations as displayed in surging government bond yields, despite tepid inflation readings within the past two weeks. This week, the benchmark 10-year US Treasury yield rose above 3.10%, marking its highest point since mid-2011.
Meanwhile, the energy-correlated Canadian dollar has been helped along recently by a sharp surge in crude oil prices in the aftermath of US President Trump’s announced withdrawal from the Iran nuclear deal last week. Also last week, key Canadian employment figures came out mixed. While Canada actually lost 1.1K jobs in April against previous expectations of an 18K increase, this disappointment was somewhat offset by higher-than-expected wage growth and a rising percentage of full-time workers versus part-time workers.
Looking ahead, Friday brings more key economic data readings out of Canada, with both the consumer price index (CPI) for April and retail sales numbers for March scheduled to be released. Consumer inflation is expected to have remained steady in April at +0.3%. March retail sales is also expected at +0.3%, while core retail sales (excluding automobiles) is expected at +0.5% after the previous month’s disappointing flat reading.
Ahead of these important Canadian data releases, USD/CAD is generally still in the midst of a pullback from last week's high just short of the 1.3000 handle, a key resistance level. In the process, the currency pair has dropped back below its key 50-day moving average. The next directional move for the pair will be driven largely by Friday's Canadian data releases, crude oil prices, and whether the US dollar remains in surge mode or begins to lose momentum. As the US dollar has been technically due for a pullback, any stronger-than-expected Canadian data on Friday could result in a further drop for USD/CAD. In this event, the next major downside support barrier lies around the 1.2700 area. Any breakdown below 1.2700 could open the way for further downside towards the 1.2526 low of mid-April.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.