It's been an action-packed trading day already as a series of high-impact data releases kicked off the trading year in earnest. It all started with Flash Eurozone CPI data at 10:00 GMT. The widely-watched figure showed outright deflation in the currency union, with prices falling by 0.2% m/m. While many traders were braced for a flat or -0.1% reading, the steeper-than-expected fall was enough to drive EUR/USD to a new 9-year low at 1.1815.
The ensuing US data further supported the dollar, with both ADP employment (241k vs. 227k eyed) and the US trade deficit ($39B in November vs. $42.3B eyed) coming in better than anticipated. Now, traders will turn their eyes to the release of the December FOMC meeting minutes this afternoon. In that meeting, the Fed came off as relatively hawkish and unconcerned with struggling economies abroad, so the minutes may flesh those themes out further. That said, we would caution traders to take any hawkish hints with a heaping pile of salt, as a new group of more dovish voters are rotating into the FOMC this year and the global economy has deteriorated further since the mid-December meeting.
The other story of note is the modest bounce in oil prices. After tagging a new 6-year low under 47.00 earlier, WTI has bounce back to the mid-48.00s as of writing. This brief recovery is spilling over into oil-dependent currencies like the Norwegian krone and Canadian dollar. My colleague Kathleen Brooks already discussed the NOK in detail earlier today, but USD/CAD is also at a very interesting crossroads.
After consolidating within a tight pennant formation around 1.16 over the slow holiday trading period, USD/CAD aggressively broke out to a new 5.5-year high on the first trading day of 2015. The pair has since surged all the way to the top of its bullish channel in the mid-1.18s, helped along by strong bullish momentum as shown by the MACD indicator (below).
While the medium-term trend remains constructive (indeed, this is one of our favorite bullish charts over the next few months), there is scope for a possible pullback over the short term. If oil prices manage to stablize in the coming days (and we admit, it’s a big “if”), USD/CAD may dip from its overbought extreme back to the middle or bottom of the established channel. On the other hand, if oil continues to collapse at a mind-boggling pace, USD/CAD could accelerate out of its channel and surge to 1.20 or higher. Either way, the price action over the next 24-48 hours could set the tone for the next week or two.
Source: FOREX.com
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