USD/CAD Risks Larger Rebound as Bearish Momentum Abates Following BoC

FX TALKING POINTS:

- USD/CAD Spikes to Fresh Weekly High as Bank of Canada (BoC) Tames Bets for Imminent Rate-Hike. Dollar-Loonie Risks Larger Rebound as Bearish Momentum Abates Ahead of Consumer Price Index (CPI).

- GBP/USD Continues to Pullback from 2018-High (1.4377) Following Lackluster U.K. Consumer Price Index (CPI). Relative Strength Index (RSI) Flops Ahead of Overbought Territory.

USD/CAD SPIKES TO FRESH WEEKLY HIGH AS BANK OF CANADA (BOC) TAMES BETS FOR IMMINENT RATE-HIKE.

USD/CAD spikes to a fresh weekly-high (1.2636) as the Bank of Canada (BoC) sticks to the current script, and the pair may stage a larger rebound over the coming days as the central bank tames expectations for an imminent rate-hike.

Recent remarks from the BoC suggests the central bank will continue to normalize monetary policy over the medium-term as ‘higher interest rates will be warranted over time,’ but Governor Stephen Poloz and Co. appear to be in no rush to implement higher borrowing-costs as ‘some monetary policy accommodation will still be needed to keep inflation on target.’

In turn, market participants may put increased emphasis on the Consumer Price Index (CPI) on tap for Friday as the headline reading for inflation is projected to pick up for the second consecutive month in March, with signs of stronger price growth likely to produce range-bound conditions for USD/CAD as it boosts bets for another BoC rate-hike in 2018.

For more in-depth analysis, check out the Q2 Forecast for USD/JPY

USD/CAD DAILY CHART

• Near-term outlook for USD/CAD has perked up as the bearish momentum abates, with the pair at risk for a larger rebound as the Relative Strength Index (RSI) appears to be breaking out of the downward trend carried over from the previous month.
• Need a close above 1.2620 (50% retracement) to open up the topside hurdles, with the first region of interest coming in around 1.2720 (38.2% retracement) to 1.2770 (38.2% expansion) followed by 1.2830 (38.2% retracement).

BRITISH POUND CONTINUES TO PULLBACK FROM 2018-HIGH (1.4377) FOLLOWING LACKLUSTER U.K. CONSUMER PRICE INDEX (CPI).

GBP/USD continues to pull back from the 2018-high (1.4377) as fresh updates to the U.K. Consumer Price Index (CPI) show an unexpected slowdown in both the headline and core rate of inflation, and the British Pound stand at risk of facing additional headwinds as retail sales are anticipated to fall 0.4% during the same period.

Another batch of lackluster data prints is likely to keep the British Pound under pressure as it saps bets for an imminent rate-hike, and the Bank of England (BoE) may stick to the sidelines at the next meeting on May 10 as ‘developments regarding the United Kingdom’s withdrawal from the European Union – and in particular the reaction of households, businesses and asset prices to them – remain the most significant influence on, and source of uncertainty about, the economic outlook.’

Keep in mind, the Monetary Policy Committee (MPC) is likely to reiterate that ‘an ongoing tightening of monetary policy over the forecast period will be appropriate to return inflation sustainably to its target at a more conventional horizon,’ but more of the same from Governor Mark Carney and Co. may keep the pound-dollar exchange rate under pressure as the central bank tames bets for higher borrowing-costs.

GBP/USD DAILY CHART

• Broader outlook for GBP/USD remains constructive as both price and the Relative Strength Index (RSI) preserve the bullish trends carried over from the previous year, but the failed attempts to close above the 1.4310 (61.8% expansion) to 1.4350 (78.6% retracement) region raises the risk for a near-term pullback especially as the momentum indicator struggles to push into overbought territory.
• First downside hurdle comes in around 1.4100 (100% expansion) followed by the 1.3970 (50% expansion) region, which lines up with the April low (1.3965), with the next area of interest coming in around 1.3830 (61.8% retracement) to 1.3870 (78.6% expansion).

For more in-depth analysis, check out the Q2 Forecast for GBP/USD

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--- Written by David Song, Currency Analyst

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