Talking Points:
- USD/CAD Remains Overbought; Risks Larger Pullback on Wait-and-See BoC.
- EUR/USD Holds Narrow Range Ahead of European Central Bank (ECB) Meeting.
- USDOLLAR Fails to Benefit From Sticky Core CPI as Mixed Data Persists.
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Chart - Created Using FXCM Marketscope 2.0
- USD/CAD may extend the advance from earlier this month as the Relative Strength Index (RSI) pushes deeper into overbought territory but, the fresh comments from the Bank of Canada (BoC) may help to temper the bearish sentiment surrounding the Canadian dollar as Governor Stephen Poloz and Co. endorse a wait-and-see approach for monetary policy.
- With the BoC arguing that the risks to the inflation profile are ‘roughly balanced, stickiness in Canada’s Consumer Price Index (CPI) may boost the appeal of the loonie as market participants scale back bets for additional monetary support.
- The DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-short USD/CAD since November 4, but the ratio appears to be working its way back towards recent extremes as it slips to -3.02, with only 25% of traders now long.
EUR/USD
- EUR/USD may continue to face range-bound prices ahead of the European Central Bank’s (ECB) interest rate decision as the Governing Council is widely anticipated to retain its current policy while keeping the door open to further embark on its easing cycle.
- Even though the diverging paths for monetary policy casts a long-term bearish outlook for EUR/USD, may see a similar market reaction to the December 3 meeting if we see a growing number of ECB officials show less interest to implement more non-standard measures.
- Need break/close above 1.0970 (38.2% expansion) to see a further retracement of the October decline, with near-term support coming in around 1.0790 (50% retracement) to 1.0800 50% expansion).
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USDOLLAR(Ticker: USDollar):
| Index | Last | High | Low | Daily Change (%) | Daily Range (% of ATR) |
|---|---|---|---|---|---|
| DJ-FXCM Dollar Index | 12262.45 | 12277.49 | 12253.89 | -0.10 | 69.78% |
Chart - Created Using FXCM Marketscope 2.0
- Despite the stickiness in the core U.S. Consumer Price Index (CPI), the near-term advance in the USDOLLAR may be getting exhausted amid the ongoing back of mixed data coming out of the world’s largest economy, while the RSI struggles to hold in overbought territory.
- Even though Fed Chair Janet Yellen anticipates private-sector consumption to lead the recovery in 2016, signs of a slowing recovery may undermine the central bank forecasts especially as renewed decline in energy prices dampens the committees scope to achieve the 2% inflation target over the policy horizon.
- Will retain a constructive view for the USDOLLAR as it makes it way towards the topside targets around 12,273 (161.8% expansion) to 12,296 (100% expansion).
Read More:
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S&P 500 - Everybody Too Bearish Too Soon?
USDOLLAR Breakout Looks Hollow without EUR/USD Participation
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--- Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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