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USD/CAD Rate Outlook Mired by Failed Attempt to Test 2018-High

USD/CAD Rate Outlook Mired by Failed Attempt to Test 2018-High

2018-05-09 17:46:00
David Song, Currency Strategist
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FX TALKING POINTS:

  • USD/CAD Rate Outlook Mired by Failed Attempt to Test 2018-High (1.3125). U.S. Consumer Price Index (CPI) on Tap.
  • EUR/USD Preserves Bearish Sequence, Relative Strength Index (RSI) Sits in Oversold Territory Ahead of European Central Bank (ECB) Rhetoric.
Image of daily performance for major currencies

USD/CAD struggles to retain the advance from earlier this month, with the pair at risk for further losses following the failed attempt to test the 2018-high (1.3125). Meanwhile, EUR/USD extends the bearish sequence from earlier this year, with the Relative Strength Index (RSI) still flashing an extreme reading as the oscillator holds in oversold territory.

USD/CAD RATE OUTLOOK MIRED BY FAILED ATTEMPT TO TEST 2018-HIGH (1.3125)

Image of USDCAD daily performance

The near-term advance in USD/CAD may continue to unravel following the failed attempt to test the 2018-high (1.3125), but fresh updates to the U.S. Consumer Price Index (CPI) may keep the pair afloat as both the headline and core reading are anticipated to pick up in April.

Even though Fed Fund Futures still show limited bets for four Fed rate-hikes in 2018, signs of heightening price pressures may boost the appeal of the greenback as it puts pressure on the Federal Open Market Committee (FOMC) to implement a more aggressive approach in normalizing monetary policy. A batch of positive developments may limit the downside risk for USD/CAD, with the pair at risk of facing range-bound conditions over the remainder of the week as Chairman Jerome Powell and Co. pledge to implement higher borrowing-costs over the coming months.

However, like the below-forecast print for the Producer Price Index (PPI), a dismal consumer price report may spark unfavorable conditions for the U.S. dollar,and USD/CAD may continue to pare the advance from the previous month as market participants scale back bets for an extended hiking-cycle.

USD/CAD DAILY CHART

Image of USDCAD daily chart
  • Lack of momentum to push back above the 1.2980 (61.8% retracement) to 1.3030 (50% expansion) region caps the near-term outlook for USD/CAD, with the pair at risk for further losses as the Relative Strength Index (RSI) appears to have flopped ahead of overbought territory.
  • Need to see a closing price below 1.2830 (38.2% retracement) to open up the broader range, with the next area of interest coming in around 1.2720 (38.2% retracement) to 1.2770 (38.2% expansion) followed by the 1.2620 (50% retracement) region.

For more in-depth analysis, check out theQ2 Forecast for the U.S. Dollar

EUR/USD PRESERVES BEARISH SEQUENCE, RELATIVE STRENGTH INDEX (RSI) SITS IN OVERSOLD TERRITORY AHEAD OF EUROPEAN CENTRAL BANK (ECB) RHETORIC

Image of EURUSD daily performance

Fresh rhetoric coming out of the European Central Bank (ECB) may fuel the recent series of lower highs & lows in EUR/USD should President Mario Draghi stick to the same tune.

Signs of ongoing slack in the euro-area economy may encourage President Draghi to deliver a dovish speech later this week as the Governing Council struggles to achieve its one and only mandate for price stability. The central bank head may largely emphasize a wait-and-see approach as ‘measures of underlying inflation remain subdued and have yet to show convincing signs of a sustained upward trend,’ with the Euro at risk of facing further losses if the speech shows a greater willingness to carry the current policy into the second-half of 2018.

However, with the quantitative easing (QE) program set to expire in September, President Draghi may start to alter the forward guidance as ‘the underlying strength of the euro area economy continues to support our confidence that inflation will converge towards our inflation aim of below, but close to, 2% over the medium term.

In turn, a batch of less-dovish comments may spark a bullish reaction in Euro, but recent price action in EUR/USD keeps the near-term outlook tilted to the downside especially as the Relative Strength Index (RSI) sits in oversold territory.

EUR/USD DAILY CHART

Image of EURUSD daily chart
  • Downside targets remain on the radar for EUR/USD as it extends the bearish sequence from earlier this week, with a break/close below the 1.1790 (23.6% retracement) to 1.1810 (61.8% retracement) region raising the risk for a move back towards 1.1670 (78.6% expansion) to 1.1680 (50% retracement).
  • May see euro-dollar continue to work its way towards the November-low (1.1554) as both price and the RSI preserve the bearish formations from earlier this year, but the momentum indicator may foreshadow a near-term rebound in the exchange rate once the oscillator climbs above 30 and flashes a textbook buy signal.

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

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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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