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US AM Digest: CAD Underperforms After Inflation Slows

US AM Digest: CAD Underperforms After Inflation Slows

Justin McQueen, Analyst

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US Market Snapshot via IG: DJIA (unch), Nasdaq 100 -0.4%, S&P 500 -0.1%

Major Headlines

  • Canadian Inflation slows to 2.2% vs. Expected of 2.3%
  • Five Star and League agree on government programme
  • China denies reports over $200bln trade surplus reduction

USD: The greenback continues to go from strength to strength, having taken another leg this morning albeit due to the slip in the Euro, which continues to feel the weight from the uncertainty over Italian politics. However, USD bulls may have to be somewhat cautious over the fact that the sharp rise in the greenback may run into exhaustion, given that every dip has run into fresh USD buying. Case remains the same that December highs at 94.22 remains the notable target in the short term.

CAD: The latest inflation data from Canada slowed slightly with the headline reading dropping 0.1ppt to 2.2%, which was below expectations of 2.3%. As such, USDCAD moved to fresh session highs which is now looking to making a break above 1.29, potentially reaching the weekly high at 1.2924. Given that inflation is falling towards the 2% target, this results in the necessity for the Bank of Canada to hike rates, as such, odds of a rate hike by the end of the month dropped from 43% to 37%. NAFTA continues to present itself as the major unknown for the Canadian Dollar outlook with uncertainty over when a deal can be finalised.

EUR: The League and 5 Star party have agreed on a government deal, which has continued to pressure Italian assets with BTP yields at the highest since November 2017 after rising over 7bps. One of the issues with the plan agreed by the populist parties is that it promises a major spending spree that will likely put Italy on a collision course with the EU. EURUSD back down to the mid-1.17s having given up the 1.18 handle, a close below 1.1790 could see the bearish trend remain intact.

DailyFX Economic Calendar: Friday, May 18, 2018 – North American Releases

US AM Digest: CAD Underperforms After Inflation Slows

DailyFX Webinar Calendar: Friday, May 18, 2018

US AM Digest: CAD Underperforms After Inflation Slows

IG Client Sentiment Index: USDCAD Chart of the Day

US AM Digest: CAD Underperforms After Inflation Slows

USDCAD: Retail trader data shows 42.8% of traders are net-long with the ratio of traders short to long at 1.34 to 1. The number of traders net-long is 3.4% higher than yesterday and 1.9% higher from last week, while the number of traders net-short is 5.9% lower than yesterday and 15.5% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USDCAD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current USDCAD price trend may soon reverse lower despite the fact traders remain net-short.

Four Things Traders are Reading

  1. Muted EURUSD Response to Larger Trade Surplusby Justin McQueen, Market Analyst
  2. Lackluster Canada CPI to Keep USD/CAD Rate Within Monthly Rangeby David Song, Currency Analyst
  3. S&P 500 & Dow Technical Analysis – Consolidating or Ready to Roll Over?by Paul Robinson, Market Analyst
  4. US China Trade War & a Brief History of Trade Wars – 1900 until Presentby John Kicklighter, Ilya Spivak, Christopher Vecchio and Renee Mu

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--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.comFollow Justin on Twitter @JMcQueenFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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