Despite the lack of fundamentals during the Asian and the European sessions today, volatility seems to be picking up at the European session opening bell.
The US Dollar is broadly lower across the board, leading safe haven assets higher, including Gold, Silver, Japanese Yen, and the Swiss Franc.
Yet, there is a lot more to come today ahead of the weekend.
Canada’s Inflation Under Spotlight Today
Today’s inflation data will likely have a notable impact on the markets. Whatever the outcomes are, it will increase or decrease the estimates for further measures by the Bank of Canada.
A few months ago, the Bank of Canada surprised the market with a sudden rate hike, due to recent growth pick up.
Today’s data would give the market an idea whether the Bank of Canada was right about its decision. Moreover, investors are likely to take a medium-term action depending on today’s outcomes.
As always, investors will start pricing in action by the Bank of Canada in advance, whether if the Bank will raise the interest rate or cut it once again. Therefore, as a trader, don’t be surprized to see the CAD as the best-performing currency today and in the coming days.
Inflation Remains Lower
Despite the fact that the inflation has been slowing down recently, it seems that the Bank of Canada is anticipating a notable rise in inflation soon.
The YoY CPI is at the lowest level since 2015 at 1%, declining from 2.1% at the beginning of this year. The estimates today points to 1.2%, which would be the first increase in three months.
However, the Bank of Canada Core CPI YoY is expected to remain stable at 0.9%, which is the lowest level of Core inflation since 2011.
Any surprize to the upside would give the market a hint that the Bank of Canada is right about a future rise in inflation. This is when things will be very interesting.
Moreover, the MoM showed a notable increase since the beginning of the year. Last month, it posted the first increase in over five months. Yet, the Core CPI MoM posted the biggest MoM increase since the beginning of the year.
As long as the Core CPI is higher, traders need to be aware that investors will keep betting on more rate hikes and they are unlikely to bet or fight the Bank of Canada anytime soon.
Oil Might Curb The Move But Not For Long
Crude Oil is highly correlated with the Canadian Dollar. However, this correlation has eased significantly over the past few months.
Crude has been declining over the past few months. Yet, the Canadian Dollar is at the highest level since the beginning of 2016. Even if Oil continues to decline, this doesn’t mean that the Canadian Dollar will be weaker, but Oil might only curb the movement. So the trend is still there.
Levels To Watch
USDCAD bottomed back in July around 1.2450, which represents a long-term support area since May of last year.
Since then, the pair retraced all the way to 1.2790’s and declined all the way back to 1.2630’s a few days ago.
So far, it seems that the short-term retracement is over, especially after the bearish engulfing candle on Wednesday.
In the meantime, a breakthrough yesterday’s lows are needed to clear the way for further declines, probably to retest that 1.25 psychological support followed by 1.2455 once again.
On the upside view, only a break above this week’s highs, which is around 1.2790’s would decrease the possibility for another leg lower, and likely to lead to another short-term retracement toward 1.2840’s, which represents its 50 DAY MA on the daily chart.