EUR/USD Losses Favored on RSI Trigger; Fed Mulls March Rate-Hike

2017-02-21 16:48:00 David Song

Talking Points:

- USD/CAD Eyes 1.3200 Hurdle Ahead of Canada Retail Sales.

- EUR/USD Risks Further Losses Following Bearish RSI Trigger; Fed Officials Mull March Rate-Hike.

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
USD/CAD	1.3145	1.3164	1.3100	39	64

USD/CAD Daily

Chart - Created Using Trading View

USD/CAD appears to be working its way back towards the monthly high (1.3212) as it breaks out of a narrow range, with the broader outlook tilted to the topside as the pair continues operate within the upward trending channel carried over from the previous year; however, the dollar-loonie stands at risk of facing range-bound conditions over the remainder of the month and we may see a slow appreciation in the exchange rate as the Relate Strength Index (RSI) continues to consolidate within the wedge/triangle formation carried over from late-2016.
The recent pickup in crude oil prices accompanied by expectations for a 0.6% rise in Canada Retail Sales may keep USD/CAD capped ahead of March as it instills an improved outlook for growth and inflation; in turn, the Bank of Canada (BoC) may adopt a more hawkish tone in 2017 as ‘inflation is expected to move close to the 2 percent target in the months ahead and remain there throughout the projection horizon while excess capacity is being absorbed,’ but it seems as though Governor Stephen Poloz and Co. are in no rush to remove the accommodative policy stance as ‘Canada’s economy continues to operate with material excess capacity.’
The series of failed attempts to close below the Fibonacci overlap around 1.2980 (61.8% retracement) to 1.2990 (23.6% retracement) raises the risk for a move back towards the February high (1.3212), with a break/close above 1.3210 (61.8% retracement) opening up the next topside hurdle around 1.3290 (50% retracement) to 1.3310 (38.2% retracement).

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
EUR/USD	1.0538	1.0616	1.0526	76	90

EUR/USD Daily

Chart - Created Using Trading View

EUR/USD quickly approaches the monthly low (1.0521), with the pair at risk for further losses especially as the RSI flashes a bearish trigger, with former trendline support now acting as resistance; fresh comments from Fed officials suggests the central bank remains on course to further normalize monetary policy over the coming months as Cleveland Fed President Loretta Mester argues she would be ‘comfortable with an increase in the Funds rate at this point,’ while Philadelphia Fed President Patrick Harker warns he ‘would not take March off the table.’
Nevertheless, it seems as though interest rate expectations are largely unchanged as Fed Fund Futures continue to highlight a greater than 60% probability the central bank will retain the current policy at the next interest rate decision on March 15; will keep a close eye on the headlines ahead theFederal Open Market Committee (FOMC) meeting minutes due out on Wednesday as Fed Governor Jerome Powell is expected to speak on the U.S. economy.
In contrast, the European Central Bank (ECB) may continue to endorse a dovish outlook and increase its efforts to ward off a ‘taper tantrum’ as President Mario Draghi and Co. struggle to achieve the 2% target for inflation, and the single-currency stands at risk of facing additional headwinds throughout the year as market participants mull the stability of the monetary union.
A break of the monthly low (1.0521) may spur a more meaningful run at the Fibonacci overlap around 1.0470 (38.2% retracement) to 1.0500 (50% expansion) especially as the RSI fails to preserve the bullish formation from November, with the next downside area of interest coming in around 1.0370 (38.2% expansion) to 1.0420 (100% expansion).

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