Talking Points
- EUR/USD slumps to fresh five-week lows, eyes 1.1096.
- USD/CAD rebounds, erases Canadian GDP losses ahead of BoC.
Event risk is heavy the through the end of the week; today the focus is on the Canadian and US Dollars. It seems as if traders are holding onto narratives rather than objectively looking at data at present time. The Euro's reaction to the strongest retail sales data since 2005 is a good example: the market is focused on Greece and the ECB's QE program, and is therefore ignoring ongoing improvements in the overall data picture.
If the same attitude is being carried over to the Canadian and US dollar today, then it keeps the attitudes of 'buy the dip' in the US Dollar and 'sell the rally' in the Canadian dollar at the forefront. Market participants, especially those engaging the greenback around US economic data, may be conditioned to thinking weak winter period data is truly a result of the weather; and any weakness seen in the US ADP Employment Change report for February or the February US ISM Services/Non-Manufacturing index are flukes.
For the Loonie, traders have summarily dismissed the 'better than expected' GDP data from yesterday (with USD/CAD trading back to its pre-release levels), in spite of the fact that the chance of a rate cut by the Bank of Canada today is below 20%, according to the OIS market. Although the Canadian Dollar rallied on the figures, the December and Q4'14 GDP figures were quite hollow: the savings rate was down; consumption growth slowed; export growth slowed; and inventory build-up and increased government spending propped up the headline readings.
See the above video for technical considerations in EUR/USD, GBP/USD, and USD/CAD.
Read more: March Forex Seasonality Sees US Dollar Rally Stunted
--- Written by Christopher Vecchio, Currency Strategist