US and Canadian Data Liberate USD/CAD from Consolidation

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US and Canadian Data Liberate USD/CAD from Consolidation

Today (5/22) we are wrapping up the week with data out of the US and Canada.

US
CPI m/m (Apr.) 0.1%
Forecast: 0.1%
Previous: 0.2%
us cpi april 2015
(click to enlarge; source: forexfactory.com)
Core CPI m/m (Apr.) 0.3%
Forecast: 0.2%
Previous: 0.2%
Inflation data in the US eased off but was right where the market expected it for April. The Core CPI was slightly better than expected. This gives us a 3rd month of positive inflation and while this does not signal inflation heating up, it provides some evidence that we are done with the deflationary environment at the turn of the year due to dramatic decline in oil prices.

CANADA
CPI m/m (Apr.) -0.1%
Forecast: 0.1
Previous: 0.7%
Core CPI m/m (Apr.) 0.1%
Forecast: 0.1%
Previous 0.6%
Retail Sales (Apr.): 0.7%
Forecast: 0.5%
Previous: 1.5%
Core Retail Sales (Apr.) 0.5%
Forecast: 0.7%
Previous: 1.8%
Inflation in Canada fell to negative after a couple of strong readings. This disappointed forecasts and is weighing against the loonie, especially against the USD, which is strengthening across the board after the data points.

Retail sales data was decent, but looking at the USD/CAD, we can see that the market was mostly moved by the US inflation data.  And since the Canadian data disappointed, the pair broke above this week’s range between 1.2162 and 1.2256.

USD/CAD 1H Chart 5/22
usdcad 1h chart 5/22
(click to enlarge)

If USD/CAD pulls back, it should hold above the 1.2240-1.2250 area or the bullish breakout would be under question. A break below 1.22 would be an indication that the breakout was false, which would translate into a bearish outlook with pressure on the 1.2162 support.

USD/CAD Daily Chart 5/22
usdcad daily chart 5/22
(click to enlarge)

The daily chart shows that indeed price action is turning bullish since USD/CAD almost tagged 1.19. However, we should probably limit the bullish outlook from today’s breakout because of the prevailing downtrend from mid-March to mid-May. A conservative outlook might expect resistance as early as 1.2350, a previously broken support level. We can also expect resistance up to the 1.2442 area, which is another common support that was broken. Finally, we should limit the upside to 1.25 because price will likely be challenged by a falling trenline by then.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.