This week USD/CAD made a key break below the 1.2360, multi-month consolidation support. As we can see in the daily chart, this breakout essentially put in a price top, and suggests a period of bearish correction if not a longer period of bearish reversal.
Today, we had strong data out of Canada.
CAN CPI m/m (Mar.): 0.7%
Core CPI m/m (Mar.): 2.0%
Can Retail Sales (Mar.): 1.7%
Core Retail Sales (Mar.): 2.0%
We US CPI data too, which showed month to month inflation of 0.2% in March for both the headline and core reading. While the US data was decent, Canadian data was better than expected. Inflation is picking up, and retail sales rebounded after a disappointing February. With the FOMC becoming less hawkish, and the BoC likely to become less dovish after today’s data, its no surprise that USD/CAD continues to be weighed down.
In the daily chart above, we can see that price is approaching 1.20. This is a psychological level and a common price during a brief mid-January consolidation. Also, the daily RSI is approaching 30, below which the market would be considered oversold, especially because the prevailing trend is bullish.
Now, if there are buyers at or above 1.20, we should first limit the bullish outlook unless, we get a string of better-than-expected US data. Otherwise, we should look at the broken range support around 1.2360-1.24 as key resistance.
Because USD/CAD is closing in on a key support and the FOMC is still relatively more hawkish than the BoC, a better play of CAD-Strength might be CAD/JPY.
CAD/JPY is also approaching a key pivot at 99.13 and the psychological level of 100, an area that might provide resistance. Nonetheless it has a better chance of continuing higher because the BoJ is still relatively dovish to both the FOMC and to the BoC.
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