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Mid-Day Report: CAD Tumbles on CPI and Retail Sales, Euro Lower on Bundesbank Report


Canadian dollar is sharply lower in early US session after data showed tamer than expected inflation. Headline CPI rose 0.3% mom 3.3% yoy in April, below expectation of 0.5% mom, 3.3% yoy. BoC CPI core moderated from 1.7% yoy to 1.6% yoy. Also, retail sales were disappointing with headline sales flat in March while ex-auto sales dropped 0-0.1% mom. Markets expected 0.9% mom rise and 0.7% mom rise respectively. BoC Governor Carney has made it clear that any further rate hike would be "carefully considered" and today's data supports BoC to be on hold for a while.
Euro weakens broadly today after Germany's Bundesbank said that the country's economy will lose momentum ahead and "growth is likely to ease somewhat in the foreseeable future." The bank noted that the strong reading of 1.5% qoq in Q1 GDP growth "considerably overstates the underlying economic momentum". Meanwhile, the bank also warned that softening fiscal reform measures in Greece would hamper the country's ability to shoulder its heavy load of debts and discredit future European agreements on member states' fiscal prudence.
BoJ left rates unchanged at between 0% and 0.1% on unanimous vote today. The bank noted in the statement that the economy is facing "strong downward pressure, mainly on the production side, due to the effects of the earthquake disaster." However, the banks still expect the economy to "return to a moderate recovery path from the second half of fiscal 2011 as supply-side constraints ease and production regains traction." Hence, the bank decided to refrain from adding additional stimulus. The JPY 30T credit program and the JPY 10T asset purchase program was maintained unchanged. Note that Deputy Governor Nishimura dropped the call for expand the asset purchases too.
Dollar index's rebound from 72.70 is still in favor to continue with 74.80 minor support intact. Nevertheless, we're expecting strong resistance from medium term falling trend line (now at 76.81) to limit upside and bring down trend resumption. Hence, focus will be on reversal signal as the index breaks 76 resistance. On the downside, below 74.80 will flip bias back to the downside for a new low below 72.70.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 0.9648; (P) 0.9681; (R1) 0.9707; More.
USD/CAD's strong rebound in early US session suggests that pull back from 0.9792 might have finished at 0.9640 already. Intraday bias is cautiously on the upside. Break will confirm that whole rise from 0.9444 has resumed. Note that a head and shoulder bottom bottom pattern should be formed (ls: 0.9525, h: 0.9444, rs: 0.9512) and 0.9444 might be a medium term bottom. Above 0.9792 will target key resistance at 0.9972. On the downside, though, below 0.9603 minor support will dampen the bullish case and turn focus back to 0.9444 support instead.
In the bigger picture, at this point, there is no indicate that medium term down trend from 2009 high of 1.3063 has completed yet. Outlook will remain bearish as long as 0.9972 resistance holds and further fall could be seen towards 0.9056 key support (2007 low). Though, we'd again start to look for reversal signal as USD/CAD approaches this key support level. Meanwhile, sustained break of 0.9972 will suggest that USD/CAD has indeed bottomed out already and should bring stronger rally towards 55 weeks EMA (now at 1.0063) first.
USD/CAD 4 Hours Chart
USD/CAD Daily Chart

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