News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
Bearish
Oil - US Crude
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Wall Street
Mixed
Gold
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bullish
More View more
Real Time News
  • $EURUSD Rates May Extend Slide Lower on #Covid_19 #SecondWave Fears ⬇️ https://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/euro_open/2020/09/25/EURUSD-Rates-May-Extend-Slide-Lower-on-Covid-19-Second-Wave-Fears-.html?CHID=9&QPID=917708&utm_source=Twitter&utm_medium=Moss&utm_campaign=twr https://t.co/eWYXYmWLPm
  • 🇬🇧 Public Sector Net Borrowing (AUG) Actual: £-35.2B Expected: £-35.1B Previous: £-15.44B https://www.dailyfx.com/economic-calendar#2020-09-25
  • Have you been catching on your @DailyFX podcast "Global Markets Decoded"? Catch up on them now, before new episodes release! https://t.co/Twr44cZ1GB https://t.co/oqbtFfeo4K
  • 🇬🇧 Public Sector Net Borrowing (AUG) Actual: £-35.92B Expected: £-35.1B Previous: £-15.44B https://www.dailyfx.com/economic-calendar#2020-09-25
  • The US Dollar, British Pound, and Euro will all be closely watching key geopolitical developments in North America (Powell testimony), the UK (Brexit talks) and Europe (EU summit). Get your market update from @ZabelinDimitri here:https://t.co/q4AJW6PTCu https://t.co/w6ETarBuNl
  • Heads Up:🇬🇧 Public Sector Net Borrowing (AUG) due at 06:00 GMT (15min) Expected: £-35.1B Previous: £-25.9B https://www.dailyfx.com/economic-calendar#2020-09-25
  • $EURUSD break below the neckline of a 2-month Head and Shoulders pattern suggests that a test of the 200-MA could be on the cards. However, with support holding at the 38.2% Fib and the RSI swerving away from oversold territory, could this prove to be a mere false-break? $EUR https://t.co/ZIiVc4gAyP
  • Following recent price action and developing technical patterns, $USDINR may rise while the #nifty50 could be at risk to further losses. Check out my full technical report here - https://www.dailyfx.com/forex/technical/article/special_report/2020/09/25/Indian-Rupee-Nifty-50-Technical-View-USDINR-May-Rise-as-Index-Falls.html?CHID=9&QPID=917702&utm_source=Twitter&utm_medium=Dubrovsky&utm_campaign=twr https://t.co/faEdOS8aMA
  • S&P 500 index vs. Fed balance sheet (2015-2020) https://t.co/6iFs2y2L68
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 97.01%, while traders in EUR/GBP are at opposite extremes with 67.78%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/H5Xd8swRpB
USD/CAD Rates May Wilt on Canadian Inflation and Retail Sales Data

USD/CAD Rates May Wilt on Canadian Inflation and Retail Sales Data

2020-08-17 07:00:00
Daniel Moss, Analyst
Share:

USD/CAD, Bank of Canada, Federal Reserve, Inflation, Economic Surprise Index – Talking Points:

  • The Nikkei 225 index plunged during APAC trade after Japanese second quarter GDP showed the island-nation had suffered its most severe contraction on record.
  • The differing stances of the Federal Reserve and Bank of Canada may be weighing on USD/CAD rates.
  • USD/CAD rates poised for further declines after slicing through pivotal trend support.

Asia-Pacific Recap

The Nikkei 225 stock index slid lower during Asia-Pacific trade, as second quarter GDP showed the Japanese economy had suffered its most severe contraction on record.

The Japanese Yen fell after the announcement, whilst the US Dollar continued its slide against its major counterparts as the DXY plunged back below the psychologically pivotal 93 level.

Gold climbed back above the $1,950/oz mark and silver rebounded 1.7% as yields on US 10-year Treasuries faded back below 70 basis points.

Looking ahead, a relatively light economic docket may see traders turn their focus to developments between the US and China, after the cancellation of highly anticipated trade talks between the two economic powerhouses over the weekend.

USD/CAD Rates May Wilt on Canadian Inflation and Retail Sales Data

Market reaction chart created using TradingView

USD/CAD Slide Set to Continue as Fed Stimulus Weighs on USD

The Federal Reserve’s ultra-accommodative stance in response to the coronavirus pandemic has been a driving factor behind the significant decline seen in USD/CAD rates. The exchange rate has fallen over 10% after surging to a multi-year high (1.4669) on March 19.

The suggestion by Minneapolis Federal Reserve President Neel Kashkari that the central bank “must walk the walk and actually allow inflation to climb modestly above 2%” suggests that any tightening of current monetary policy settings is out of the question in the near term.

This intentional overshoot in inflation past the mandated 2% target is an idea unique to members of the US central bank and could continue to hamper the US Dollar against its Canadian counterpart, as Vice Chair Richard Clarida states that “the Federal Reserve will continue to act forcefully, proactively and aggressively as we deploy our toolkit – including our balance sheet, forward guidance, and lending facilities”.

Although the Bank of Canada has committed to “holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved [and] is prepared to provide further monetary stimulus as needed”, it seems unlikely that the Canadian central bank will be as loose as its US counterpart.

Therefore, upcoming inflation data may strengthen the Canadian Dollar if consumer prices exceed the consensus estimate of a 0.5% rise year-on-year in July. Buoying the risk-sensitive currency should market participants discount the likelihood of additional monetary stimulus measures from the BoC.

USD/CAD Rates May Wilt on Canadian Inflation and Retail Sales Data

DailyFX Economic Calendar

Canadian Economic Performance Underpinning CAD

Outside of monetary policy influences, the surprising performance of the Canadian economy relative to expectations may also be a significant factor driving USD/CAD lower.

Overlaying the Citi Economic Surprise Index for Canada, alongside the index for the United States, shows that when the Canadian economy exceeds economic expectations by a greater margin than its US counterpart, USD/CAD rates noticeably decline.

However, this relationship doesn’t appear to be entirely inverse as the exchange rate seems to plateau in periods when the US economy is outperforming its North-American counterpart. Perhaps indicating that US economic data is being somewhat discounted by regional investors.

Despite a relatively small sample size, this trend should continue to be monitored and may give a greater amount of weight to upcoming retail sales and ADP employment data for the month of July.

Better-than-expected economic releases may fuel further USD/CAD weakness.

USD/CAD Rates May Wilt on Canadian Inflation and Retail Sales Data

Data Source – Bloomberg

USD/CAD Daily Chart – Break of 2012 Uptrend Ominous for USD Bulls

From a technical perspective, the outlook for USD/CAD remains tilted to the downside as price tracks in a descending Schiff Pitchfork after breaking through pivotal support at the 2012 uptrend.

With the 21-, 50- and 200-day moving averages arranged in a bearish formation and the RSI struggling to break above its downtrend from the yearly extremes, an extension of the 5-month decline looks likely.

However, bullish RSI divergence suggests that the US Dollar could claw back some ground in the coming days, with support at the 38.2% Fibonacci expansion (1.3199) perhaps serving as a platform for price to retest resistance at the June low (1.3316).

That being said, the 21-DMA (1.3350) may stifle any significant attempt to break higher as it converges with the June low (1.3316) and Pitchfork parallel resistance.

Nevertheless, a daily close above the 1.3350 level is needed to invalidate bearish potential and could open a path back to the monthly high (1.3451).

On the other hand, a daily close below the 38.2% Fibonacci (1.3199) would probably signal the resumption of the primary downtrend and may bring into play the 50% Fibonacci (1.3039) and December 2019 low (1.2952).

USD/CAD Rates May Wilt on Canadian Inflation and Retail Sales Data

USD/CAD daily chart created using TradingView

USD/CAD BULLISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -7% 20% 2%
Weekly -18% 46% -2%
What does it mean for price action?
Get My Guide

-- Written by Daniel Moss, Analyst for DailyFX

Follow me on Twitter @DanielGMoss

Building Confidence in Trading
Building Confidence in Trading
Recommended by Daniel Moss
Building Confidence in Trading
Get My Guide

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES