USD/CAD Supported After Subdued Inflation Data from Canada

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USD/CAD Supported After Subdued Inflation Data from Canada

Today (12/19) we had inflation data in the form of CPI and demand data in the form of retail sales, from Canada.

CAN CPI m/m (November): -0.4%
Forecast: -0.2%
Previous: 0.1%
Core CPI m/m (Nov.): -0.2%
Forecast: 0.1%
Previous: 0.3%
CAN CPI 12/19
(click to enlarge; source: StatCan)

Canada is an oil-producing nation, and the decline in oil prices have been sharp and persistent. This has lead to a decline in the headline inflation data in November on a month to month basis. On the year, the annual CPI growth in November was 2.0%, after a 2.4% reading in October. While the 2.0% reading is in-line with the BoC’s target, the trend is to the downside, so we can expect the annual CPI growth reading to fall in the coming months.

CAN Retail Sales m/m (October): 0.0%
Forecast: -0.4%
Previous: 0.8%
Core Retail Sales m/m (Oct.): 0.2%
Forecast: 0.2%
Previous: 0.1%
retail sales canada oct 2014
(click to enlarge; source: StatCan)

Retail sales remained relatively flat in October. This was still better than the expected -0.4% print. This is a non-disappointing print, but nothing to write home about.

We discussed that the inflation report would be more important as an implication for BoC policy decisions. Also, it is more timely, for November, whereas the retail sales data is for October.

Canada’s disappointing inflation data is weakening the loonie. Let’s take a look at the USD/CAD’s reaction and subsequent technical conditions.

USD/CAD 4H Chart 12/19
usdcad 4h chart 12/19
(click to enlarge)

Consolidation: This week, USD/CAD has retreated after failing to break above the 1.1672 high on the year. The market defended this resistance even after the FOMC statement, which strengthened the USD across the board. This can be interpreted as a clue of CAD-strength, at least at these levels for the USD/CAD.

Brief Reaction: Now, after the poor inflation report, there was a brief round of CAD-selling, but as we can see in the 4H chart, it was not sustained. The USD/CAD was already at 1.16 before the inflation data. Afterwards, we got a little bump, but the pair is still hanging around 1.16.

Outlooks: So far USD/CAD is holding above the 1.1550 pivot, which is reinforced by a rising trendline. Now, if USD/CAD can break below 1.1550 after today’s inflation report, we should expect some bearish outlook in the short-term. However, because of the prevailing uptrend, we should limit our bearish oultook to he 1.15 then 1.14 pivots.

If USD/CAD can stay above 1.1550, the pair still has a bullish outlook, and a subsequent return above 1.16 will put pressure on the 1.1672 high again.

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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.