USD/CAD Outlook Mired by Near-Term Series of Lower Highs & Lows

2016-08-12 16:56:00

Talking Points:

- USD/CAD Continues to Carve Bearish Pattern; Canada Retail Sales, CPI in Focus.

- USDOLLAR Holds Weekly Range; Fed Expectations Remain Unchanged as Mixed Data Persists.

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Chart - Created by David Song

After failing to test the July high (1.3253), USD/CAD stands at risk for a further decline as the pair continues to carve a near-term series of lower highs & lows; may see dollar-loonie threaten the upward trend carried over from back in April as the Relative Strength Index (RSI) fails to preserve the bullish formation from June.
With Canada’s Consumer Price Index (CPI) anticipated to hold steady at an annualized 1.5%, sticky price growth accompanied by a 0.6% expansion in Retail Sales may fuel the near-term resilience in the loonie as it raises the Bank of Canada’s (BoC) scope to gradually move away from its easing cycle.
A close below the Fibonacci overlap around 1.2930 (61.8% expansion) to 1.2980 (23.6% retracement) may spur a move back towards the July low (1.2830) followed by 1.2740 (50% expansion).

The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd remains net-long USD/CAD since August 9, with retail sentiment approaching the most extreme reading since June when the ratio climbed to +1.61.
The ratio currently sits at +1.44 as 59% of traders are long, with long positions 11.3% higher from the previous week, while open interest stands 4.3% above the monthly average.

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USDOLLAR(Ticker: USDollar):

Index	Last	High	Low	Daily Change (%)	Daily Range (% of ATR)
US Dollar Index	11962.81	11977.6	11915.43	-0.02	111.22%

Chart - Created by David Song

The USDOLLAR continues to consolidate within a narrowing range, with the greenback at risk of facing further losses as the weak Retail Sales report accompanied by the lackluster U. of Michigan Confidence survey fuels concerns of a slowing recovery; the Federal Open Market Committee (FOMC) Minutes due out on August 17 may largely endorse a wait-and-see approach as ‘market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.’
In turn, market participants may pay close attention to the fresh comments from Atlanta Fed President Dennis Lockhart, St. Louis Fed President James Bullard, New York Fed President William Dudley and San Francisco Fed President John Williams especially as Fed Funds Futures continue to highlight limited expectations for a 2016 Fed rate-hike.
Lack of momentum to close above 11,989 (50% retracement) may spur a larger decline in the USDOLLAR, with a move back below 11,898 (50% retracement) opening up the next downside region of interest around 11,822 (23.6% retracement) to 11,843 (38.2% retracement).