Today (7/18) is light on fundamentals. There were a couple of Canadian releases:
1) Wholesale Sales in May grew 2.2% on the month, beating forecast of a 0.7% reading. April’s was .4% revised up from 1.2%. Although this is a positive sign that consumers are spending, it is not a timely economic indicator for forex traders.
2) Inflation data for June is more important: The Consumer Price Index (CPI) grew 0.1% on the month in June, down from May’s 0.5% reading, but in-line with forecasts. While, June’s inflation reading seems to have cooled off, the year to year inflation growth rate is still rising. Compared to June 2013, the CPI in June this year is up 2.4%. The reading was 2.3% in May.
(source: Statistics Canada)
The inflation data was somewhat mixed, but I think the y/y inflation rate of 2.4% is key because it shows price pressure pushing CPI inflation above the 2.0% target rate. If inflation continues to stay above 2.0%, the Bank of Canada will have to start considering moving up its time-line for a rate hike. The prospect of a rate hike should strengthen the Loonie.
Let’s take a look at the USD/CAD’s reaction and the general technical developments.
– The daily chart shows that the market found a mini-price bottom last week and rallied to 1.0793.
– The stalled, and the market put on some CAD strength initially, but this week’s low for USD/CAD at 1.0708 still holds. The bullish correction scenario is still alive.
– Around the 1.08 area, there are the 200-day and 50-day simple moving averages which can be see as resistance.
– A break above 1.0825 would clear the falling trendline and these moving averages, and would open up a larger bullish correction scenario, then we have had this past week, perhaps toward 1.0925, where the 100-day SMA reside.
– A break below the 1.07 handle should put the focus back to 1.0620, with downside risk toward the 1.0560 pivot. OR we can simply be getting into a sideways consolidation period. The mode is therefore neutral-bearish with a break below 1.07.
– The RSI has been held below 50, which reflects strong bearish momentum in the daily chart. Currently, the RSI seems to be stalled around 50. If price falls, we should monitor the RSI as it approaches 30. If price is also near the 1.0560 support, we should anticipate some short-term bounce.
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