- CAD rallies on soft U.S Retail Sales
- Dollar bulls looking to add to their long positions
- Market is expecting a soft Canadian jobs report
- USD Bulls feel confident above $1.2600
The CAD ($1.2653) is stronger this Thursday morning; extending earlier gains against the ‘mighty’ dollar after the U.S reported retail sales declining (-0.6% – third consecutive monthly decline) more than expected in February. Again, unseasonably severe winter weather is being held responsible for the hit to both headline and the core print (-0.1). As a result, analysts are now forecasting that Q1 U.S GDP growth will come in around the more modest 2.0% level. Most of the market will now begin to focus on next weeks FOMC meeting. Will Ms. Yellen and he fellow policy makers drop “patient” from their copy?
Risk of a “Double Top”
Yesterday, the market hit $1.2800, matching the 2015 high posted in late January and triggered the medium term technical objectives at $1.2780 that have been in play since the dollars pull back to $1.2575 on Monday. The loonie has temporarily managed to brush off some second-tier domestic data, which showed Canada new-home prices slipping in January (NHPI m/m -0.1%).
The market certainly wants to get long USDs, but prefers not to pay up to own them. Dollar bulls ideally would like to get long USD/CAD ahead of $1.2600 and use Monday’s lows for support. Have they missed the boat? Today’s dollar pull back has stopped just short of their entry levels ($1.2616) and with tomorrow's Canadian employment numbers expected to be on the soft side they may not get that opportunity again during the North American session.
This week’s key event risk for Canada is tomorrow’s February jobs number. With a -5k fall in employment expected, and the jobless unemployment rate forecasted to rise to +6.7% from +6.6%, should be capable of squeezing the weaker CAD bulls out of their positions. For the dollar supporters, once they are able to take $1.2800 out (January 30 highs) they will feel confident in setting their sights on their new medium term target, the $1.3000 handle. The risk is of a $1.2800 double top, especially if Canadian job numbers surprise to the upside. As long as USD/CAD continues to trade above the psychological $1.2600 handle the dollar bulls will feel happy.