Dollar Confined in Range, Loonie to Look into CPI

Outlook in the forex markets remain basically unchanged. Dollar is trading as the strongest major currency for the week. However, it remains bounded in recent range against others. Current rebound is viewed as a corrective move and there is no change in the bearish down trend yet. Yen and Sterling are following as the second and third strongest. Meanwhile, commodity currencies are trading broadly lower. In particular, Canadian Dollar is broadly pressured after yesterday’s weak retail sales data. The loonie will turn to CPI release today for more guidance.

Fed Kaplan: Three hikes a reasonable base case

Dallas Fed Robert Kaplan said that the tax cut may deliver "too much of a good thing" as fiscal stimulus". And, it’s "wise" to take back some of the monetary accommodation. He believed three rate hikes year is a "reasonable" base case. Nonetheless, that could change if employment and inflation developments exceed his expectations.

ECB Smets: FX volatility a point of attention

ECB Governing Council member Jan Smets said that the "volatility on the foreign exchange markets remains a point of attention" fro the central bank. Nonetheless, he emphasized that the strength of Euro is not as problem as long as it’s supported by fundamentals. He added that "only if, as we said last time after our monetary policy meeting in Frankfurt, this volatility becomes excessive, when certain levels are breached because of overshooting, because of a devaluation policy to increase competitiveness, can problems occur."

Most Analysts saw USD/JPY best at 110-114

According to a Reuters poll between February 16-22, 22 out of 34 economists expected BoJ to keep interest rate at zero throughout 2018. Most expected BoJ to keep year yield target at zero this year. 28 out of 36 expected the central bank to keep ETF purchase at around JPY 6T while 8 expected the amount to be cut later this year or afterwards. Regarding the exchange rate, 20 of 34 saw USD/JPY at 110-114 as optimal for the economy. 8 saw 105-109 while 3 said 115-119. Another three said 120 or above.

On the data front

New Zealand retail sales rose more than expected by 1.7% qoq in Q4. Japan national CPI core was unchanged at 0.9% yoy in January, corporate service price rose 0.7% yoy. German GDP final and Eurozone CPI final will be the main feature in the European session. Canadian CPI will be the focus later in the day.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.2667; (P) 1.2709; (R1) 1.2748; More….

Intraday bias in USD/CAD remains on the upside as rebound from 1.2246 would target 100% projection of 1.2246 to 1.2687 from 1.2450 at 1.2891, which is close to 1.2919 key resistance. We’d be cautious on strong resistance from there to limit upside. On the downside, below 1.2624 minor support will turn intraday bias neutral first. But further rally would be mildly in favor as long as 1.2450 support holds.

In the bigger picture, the rebound from 1.2246 is mixing up the medium term outlook. Nonetheless, USD/CAD is staying below falling 55 week EMA (now at 1.2776), hence, the bearish case is in favor. That is, fall from 1.4689 is not completed yet. Sustained break of 1.2061 key support will carry larger bearish implication and target 61.8% retracement of 0.9406 to 1.4689 at 1.1424. However, firm break of 1.2919 will revive the case of medium term reversal and turn outlook bullish.

Economic Indicators Update