DXY Rebound Pauses at Key Resistance; CAD-crosses Vulnerable
- The DXY Index rebound has paused at the descending trendline from the November, December and January swing highs, as well as the top of the channel from the January 17 and February 8 highs.
- Retail trader sentiment suggests a mixed trading environment for the US Dollar.
Volatility is back. It's time to review the Traits of Successful Traders series to stay grounded with the tenets of risk management.
The US Dollar (via DXY Index) continues to hold below key resistance at the descending trendline from the November, December and January swing highs, as well as the top of the channel from the January 17 and February 8 highs. Overall, the outlook for the DXY Index hasn't changed despite the rebound over the past week: 91.01 needs to be cleared before a bottom can be called.
As we're 'waiting for the DXY Index to go' (hopefully it's not stuck like Vladimir and Estragon in Samuel Beckett's famous play), attention should be drawn elsewhere as the trading week closes out. With a light schedule for economic data releases today on the North American calendar, January Canadian CPI figures offer the clearest opportunity for event risk-driven price action.
Canadian inflation is expected to dropped further below the central bank’s medium-term target of +2.0% in January, dampening the likelihood of another rate hike in the first half of this year. In early-January, overnight index swaps were pricing in an 81% chance of another 25-bps hike; now, odds have dropped to 63%. Despite recent improvements in the labor market, figures from Statistics Canada showed that overall wage growth is at its lowest since 1990. Weakness in USD/CAD over the past year is proving to be a headwind for inflation.
In an environment where volatility has picked up, it is absolutely imperative that traders adjust their risk management perspective. If you haven't yet, it's the right time to review the Traits of Successful Traders series in order to become reacquainted with the tenets of risk management.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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