USDCAD TECHS: Building Base for Recovery
- RES 4: 1.3751 High Nov 4
- RES 3: 1.3705 Dec 16 and the bull trigger
- RES 2: 1.3665 High Jan 6
- RES 1: 1.3560 High Feb 22
- PRICE: 1.3546 @ 16:26 GMT Feb 22
- SUP 1: 1.3275/3262 Low Feb 14 / 2
- SUP 2: 1.3226 Low Nov 15 and bear trigger
- SUP 3: 1.3205 61.8% retracement of the Aug 11 - Oct 13 rally
- SUP 4: 1.3131 0.764 proj of the Oct 13 - Nov 15 - Dec 16 price swing
USDCAD tilted higher Wednesday, topping the recent high of 1.3537. This defies the view that the recent bounce was corrective, as the pair builds a base for further gains. The bull trigger is still someway off at 1.3705, but a weekly close above the 1.3500 would prove constructive. A break of 1.3262, Feb 2 low, would strengthen bearish conditions and open 1.3226, the Nov 15 low and the bear trigger.
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USDCAD TECHS: Bearish Threat
- RES 4: 1.3751 High Nov 4
- RES 3: 1.3705 Dec 16 and the bull trigger
- RES 2: 1.3665 High Jan 6
- RES 1: 1.3462/3521 20-day EMA / High Jan 19
- PRICE: 1.3377 @ 16:39 GMT Jan 23
- SUP 1: 1.3351 Low Jan 18
- SUP 2: 1.3317 Low Nov 24 / 25
- SUP 3: 1.3226 Low Nov 15 and bear trigger
- SUP 4: 1.3205 61.8% retracement of the Aug 11 - Oct 13 rally
USDCAD traded flat into the Monday close, with price action doing little to row back against the bearish threat evident in the pullback from 1.3521 last week, the Jan 19 high. A continuation lower would expose support at 1.3322, the Jan 13 low, where a break would signal scope for an extension towards 1.3226, the Nov 13 low and a bear trigger. On the upside, price needs to break above 1.3521 to highlight scope for a stronger bounce.
CANADA: VIEW: National's Call For The BoC Pausing
- National Bank are in the minority of analysts forecasting a ‘no change’ decision but don't dismiss that there are valid reasons to expect the BoC to pull the trigger and hike further.
- The BoC’s new data dependent guidance ended up muddying the water even more given strength in some corners of the economy (labour markets) and weakness in others (housing, business sentiment).
- Importantly, the intervening period since December’s meeting has, on balance, been positive from an inflation normalization perspective. National think inflation is normalizing quickly enough and are very cautiously optimistic the BoC will agree.
- The resilience in the jobs market to date combined with easing inflation should be celebrated as it means a soft-ish landing is in reach, not that rate hikes must continue until job losses are seen.
- Inflation expectations in the BOS don’t scream for a pause with the 2Y outlook barely budging but more weight is put on long-term expectations remaining anchored (for businesses and consumers, but more importantly financial markets).
- An updated MPR will usher in a more tepid inflation profile which shouldn’t argue for more rate hikes than had been priced three months ago.
- A tinge of data dependence is likely to be retained but we could see the Bank introduce language to make the bar for additional hikes even higher. This may come via an acknowledgement of significant tightening to date and/or an explicit recognition of the lags with which policy operates.
US TSYS: Late Market Roundup
Tsys weaker after the bell, Bonds off early session lows (30YY +.0400 at 3.6947% vs. 3.7148% high) w/ curves running mixed after bear steepening earlier (2s10s -1.950 at -71.523 vs. -67.092 high).
- Trade volumes remain subdued (TYH3 <950k) w/ much of Asia out for Lunar New Year holidays this week (China, Taiwan Mon-Fri; Vietnam Mon-Thu; Hong Kong Mon-Wed; Singapore and South Korea Mon-Tue).
- No react to midmorning data: US December Leading Indicator -1.0% MoM vs. -0.7% est, while absence of Fed speak w/ members in media blackout through Feb 2, has sapped market interest somewhat.
- Equities remain strong, however, off highs amid modest profit taking in late trade Monday. Information Technology and Communication Services sectors continued to outperform.
- Pick-up in data Tue w/ Philly-Fed Non Mfg Activity (-12.8 rev, --), Richmond Fed Mfg Index (1, -5); Bizz Cond (-14, --) and S&P Global US Manufacturing PMI (46.2, 46.0), Services PMI (44.7, 45.0); Comp PMI (45, 47.0) expected.
- Treasury auctions: $34B 52W bill CMB auction at 1130ET, $42B 2Y Note auction (91282CGG0) at 1300ET.
