Overextended to the downside in the Canadian Dollar
Unsurprisingly, the CFTC COT positioning data shows that large speculators are heavily weighed on the short side of the Canadian dollar at the moment, which is at its highest since 2017 and resembles an overstretched market (reportable open interest is net short Canadian dollar futures by more than 80,000 contracts). This is due to both data deterioration and the markets expecting the Bank of Canada (BoC) to cut rates at June or July’s meeting. Markets are currently pricing in around a 50% probability of a move in June, with July fully priced in (-27bps).
Inflation data eyed
Inflation remains a key talking point, and today’s inflation print marks the last major risk event ahead of June’s BoC meeting. As you may already know, this central bank works with an inflation target of 2.0% within an inflation-control range between 1.0% and 3.0%, and, as of writing, we are within that range. For March, core year-on-year CPI inflation is at +2.0%, while headline year-on-year CPI inflation is at +2.9%. The BoC, however, has three preferred core measures that it tracks: CPI-trim, CPI-median and CPI-common, and the average of these three reports is shaking hands with the upper edge of the inflation-control range at +2.9%.
Estimates heading into today’s event are for the April headline year-on-year CPI inflation to slow to a rise of +2.7%, down from +2.9% the month prior (estimate range between +2.9% and +2.4%), with the month-on-month release expected to remain unchanged at +0.6% (estimate range between +0.7% and +0.4%).
Absent any strong upside deviation in the data, a miss in today’s numbers could help seal the deal for a rate cut at June’s meeting. In terms of trading the event, however, a +2.7% print in the YoY headline CPI release or below will likely be enough to trigger CAD downside, but given how stretched the Canadian dollar is at the moment, it may be a short-lived move. What would surprise the markets more would be a broad beat in the data, a release that could see the CAD bid and markets potentially pricing out the possibility of a cut in June in favour of another hold.
Technically speaking?
From a technical standpoint, the USD/CAD currency pair remains rangebound between support at CAD1.3244 and resistance from CAD1.3818, with the pairing recently fading the upper edge of the said range this month. Beyond this consolidation, support calls for attention at CAD1.2975 and resistance at CAD1.4067.
Regarding the daily chart, support entered the fray in recent trading at CAD1.3609, and bids moderately defended the level. Resistance demands attention overhead at CAD1.3661, and a break here paves the way for another layer of resistance at CAD1.3818. Interestingly, south of current support, scope to navigate lower can be seen as far south as support from CAD1.3388.
Based on a more short-term view of the pair, H1 flow is currently limited by what appears to be an ascending triangle formation between CAD1.3641 and CAD1.3590.
The focus heading into the CPI inflation release will be on daily support from CAD1.3609 and neighbouring resistance at CAD1.3661. A softer-than-expected release could see the USD/CAD respect current support, break through the upper boundary of the H1 ascending triangle and take aim at daily resistance. On the other hand, an upside surprise might trigger USD/CAD selling and see price break through CAD1.3609 and unearth a bearish breakout scenario in the direction of daily support at CAD1.3388.
This material on this website is intended for illustrative purposes and general information only. It does not constitute financial advice nor does it take into account your investment objectives, financial situation or particular needs. Commission, interest, platform fees, dividends, variation margin and other fees and charges may apply to financial products or services available from FP Markets. The information in this website has been prepared without taking into account your personal objectives, financial situation or needs. You should consider the information in light of your objectives, financial situation and needs before making any decision about whether to acquire or dispose of any financial product. Contracts for Difference (CFDs) are derivatives and can be risky; losses can exceed your initial payment and you must be able to meet all margin calls as soon as they are made. When trading CFDs you do not own or have any rights to the CFDs underlying assets.
FP Markets recommends that you seek independent advice from an appropriately qualified person before deciding to invest in or dispose of a derivative. A Product Disclosure Statement for each of the financial products is available from FP Markets can be obtained either from this website or on request from our offices and should be considered before entering into transactions with us. First Prudential Markets Pty Ltd (ABN 16 112 600 281, AFS Licence No. 286354).
Recommended Content
Editors’ Picks
![EUR/USD stays below 1.1100, looks to post weekly losses](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/EURUSD/european-euro-coin-on-top-of-american-dollar-bill-11292130_XtraSmall.jpg)
EUR/USD stays below 1.1100, looks to post weekly losses
EUR/USD continues to trade in a narrow range below 1.1100 and remains on track to end the week in negative territory. Earlier in the day, monthly PCE inflation data from the US came in line with the market expectation, failing to trigger a reaction.
![GBP/USD struggles to find a foothold, trades near 1.3150](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/GBPUSD/iStock-157771037_XtraSmall.jpg)
GBP/USD struggles to find a foothold, trades near 1.3150
GBP/USD stays on the back foot and trades in negative territory at around 1.3150 on Friday. The US Dollar holds its ground following the July PCE inflation data and doesn't allow the pair to stage a rebound heading into the weekend.
![Gold retreats toward $2,500 ahead of the weekend](https://editorial.fxstreet.com/images/Markets/Commodities/Metals/Gold/gold-bars-50657756_XtraSmall.jpg)
Gold retreats toward $2,500 ahead of the weekend
Gold stays under modest bearish pressure and declines toward $2,500 in the American session on Friday. The 10-year US Treasury bond yield edges higher toward 3.9% after US PCE inflation data, causing XAU/USD to stretch lower.
![Week ahead – Investors brace for NFP amid Fed rate cut speculation](https://editorial.fxstreet.com/images/Macroeconomics/EconomicIndicator/Employment/NFP/america-back-to-work-gm178972493-25143312_XtraSmall.jpg)
Week ahead – Investors brace for NFP amid Fed rate cut speculation
Here comes another NFP week, with investors eagerly awaiting the results as they try to discern the size and pace of the Fed’s forthcoming rate cuts. The weaker than expected July numbers triggered market turbulence, instilling fears about a potential recession in the US.
![Easing Eurozone inflation to back an ECB rate cut in September](https://editorial.fxstreet.com/images/Macroeconomics/Countries/Europe/Eurozone_countries/Eurozone/eu-flags-flying-at-the-european-commission-building-brussels-belgium-24759579_XtraSmall.jpg)
Easing Eurozone inflation to back an ECB rate cut in September Premium
Eurostat will publish the preliminary estimate of the August Eurozone Harmonized Index of Consumer Prices on Friday, and the anticipated outcome will back up the case for another European Central Bank interest rate cut when policymakers meet in September.
![Moneta Markets review 2024: All you need to know](https://editorial.fxstreet.com/images/IT/Testing/Review/FXSBadgeCertifiedBackg_XtraSmall.png)
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.