USD/CAD limping ahead of US CPI

The US dollar was stable against the Canadian dollar today, after the USD/CAD’ slump last week. But in light of the Fed turning dovish, we now think that there is a greater risk for the USD/CAD to reverse its bullish trend. As such, any short-term strength could fade – especially if incoming US data deteriorates further, starting with CPI tomorrow.

It has been a rather quiet day in FX with the lack of any major Eurozone or North American data to drive the markets. Although Trump took to twitter to again criticize the Fed, this had minimal impact on the markets. Many investors are looking forward to tomorrow’s publication of US Consumer Price Index (CPI) data in order to figure out whether the market’s interest rate projections are justified or unreasonably too low. If inflation turns out to be very subdued then we may very well see a rate cut at the FOMC’s July meeting. However, with the stock markets remaining near record highs, some would argue the Fed may decide against such a move for it will want to have some ammunition left for when the (economy or) markets slump again. In any case, there is still plenty of time left for investors to digest the recent dovish commentary from the Fed, so the dollar could remain range-bound in the short-term. The US dollar was also stable against the Canadian dollar today, after the USD/CAD’ slump last week. But in light of the Fed turning dovish, we now think that there is a greater risk for the USD/CAD to reverse its bullish trend. As such, any short-term strength could fade – especially if incoming US data deteriorates further, starting with CPI tomorrow.

Donald Trump: US inflation VERY LOW, Fed clueless

Donald Trump took to twitter again to declare that the United States has “VERY LOW INFLATION,” which is a “beautiful thing!” Does Trump know something about tomorrow’s CPI? Analysts expect US CPI to have eased to 1.9% year-over-year in May from 2.0% the month before, while core CPI is seen remaining unchanged at 2.1% in May. Any readings less than these could prompt renewed dollar selling. The US President also took the opportunity to have a dig at the EU for allegedly devaluing the euro, which is putting the US “at a big disadvantage.” And just when you thought that the Fed might be in Trump’s good books again for talking down interest rate hike expectations recently, he tweeted: “The Fed Interest rate way too high, added to ridiculous quantitative tightening! They don’t have a clue!”

IS USD/CAD’s breakdown genuine this time?

With the USD/CAD breaking below its 200-day moving average, we are wondering whether this proves to be yet another trap for the bears or is a genuine break down. This time, the bears would be pleased to observe that price has also broken its long-term bullish trend line. The Loonie turned around viciously after hitting our previously-noted resistance level around the 1.3565/70 area at the end of May. That proved to be a false break above the then range high at 1.3520, resulting in a sharp withdrawal of bids and leading to a drop below all key short-term support levels, including 1.3385. This level is now the one to watch on a potential rebound, for this could turn into resistance going forward. But will the USD/CAD be able to climb all the way back to this level given the abovementioned technical damage it has incurred? While it could get a helping hand from a potentially strong US CPI data on Wednesday, I wouldn’t be surprised if it just consolidates here or rises back to re-test the 200-day MA, before taking another dive towards the next support at 1.3200/10 area. Indeed, if the US CPI were to miss expectations badly then a new 2019 low below January’s low (~1.3070) could be on the way.

usd/cad

Source: TradingView and City Index


Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.