Dollar remains the weakest major currency over the week despite some positive comments from Fed officials. Fed Governor, Lael Brainard indicated that material increase in fiscal stimulus measures would lead to acceleration in rate hikes. Speaking for the Brookings Institution, Brainard suggested that "if fiscal policy changes lead to a more rapid elimination of slack, policy adjustment would, all else being equal, likely be more rapid than otherwise". She added that "based on recent spending indicators, we might expect progress to continue to be gradual and steady". Meanwhile, speaking for the National Retail Federation, New York Fed president William Dudley noted that the "risk that the Fed will snuff out the expansion anytime soon seems quite low because inflation is simply not a problem".

However, the greenback was clearly weighed down by president elect Donald Trump’s warning on its strength. He said that the US might need to "get the dollar down" if a change in tax policy drives it higher, adding that "having a strong dollar has certain advantages, but it has a lot of disadvantages". Regarding the trade relations with China, Trump noted that "our companies can’t compete with [China] now because our currency is too strong. And it’s killing us". Overall, Trump will have his inauguration date later on Friday and he might outline his initial priorities in office. There are prospects of more volatility in the greenback.

Sterling is now the strongest major currency after lifted by prime minister Theresa May’s speech on Brexit. May emphasized that the goal of her 12-point plan for Brexit is "a new, positive and constructive partnership between Britain and the European Union". Concerning the closely watched trade relations, she noted, "Brexit must mean control of the number of people who come to Britain from Europe. And that is what we will deliver… what I am proposing cannot mean membership of the single market". While providing details on neither the trade terms nor immigration control, May indicated that UK would seek a free-trade deal with the EU outside the single market, a new customs relationship that would allow Britain to negotiate trade deals around the world, but have "frictionless" cross-border trade, a "phased implementation process" at the end of the two-year period of negotiations, rather than a lengthy transitional deal, no more unrestricted immigration from the EU, and complete withdrawal from the European Court of Justice. Importantly, May confirmed that "the government will put the final deal… to a vote in both Houses of Parliament before it comes into force".

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Bank of Canada will announce rate decision today. BoC is widely expected to keep benchmark interest rate unchanged at 0.50% and will likely be a non-event. Fed will also release the Beige Book economic report. On the data front, Australia Westpac consumer confidence rose 0.1% in January. German CPI was finalized at 0.7% mom, 1.7% yoy in December. UK will release job data today while Eurozone will release CPI final. US will release CPI, industrial production and NAHB housing index.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3132; (P) 1.3159; (R1) 1.3201; More

USD/CAD’s fall from 1.3598 resumed after brief consolidation and intraday bias is back on the downside. As noted before, prior break of 1.3080 key support level could have completed a double top pattern (1.3588, 1.3598) and indicates reversal. That is, whole corrective rise from 1.2460 is finished. Further fall should be seen to retest 1.2460 low. However, considering bullish convergence condition in 4 hours MACD, break of 1.3189 minor resistance will dampen this bearish view and turn bias to the upside for retesting 1.3598.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. The second leg is likely finished at 1.3598 too after hitting 50% retracement of 1.4689 to 1.2460 at 1.3575. Break of 1.3080 would now likely resume the fall from 1.4689 through 1.2460 to 50% retracement of 0.9406 to 1.4689 at 1.2048. We’d start to look for reversal signal below 1.2460 again to complete the correction. In case of another rise, we’ll look for topping sign at 61.8% retracement of 1.4689 to 1.2460 at 1.3838.

USD/CAD 4 Hours Chart

USD/CAD Daily Chart

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
23:30 AUD Westpac Consumer Confidence Jan 0.10% -3.90%
7:00 EUR German CPI M/M Dec F 0.70% 0.70% 0.70%
7:00 EUR German CPI Y/Y Dec F 1.70% 1.70% 1.70%
9:30 GBP Jobless Claims Change Dec 5.0k 2.4k
9:30 GBP Claimant Count Rate Dec 2.30% 2.30%
9:30 GBP Average Weekly Earnings 3M/Y Nov 2.60% 2.50%
9:30 GBP ILO Unemployment Rate 3M Nov 4.80% 4.80%
10:00 EUR Eurozone CPI M/M Dec F 0.50% -0.10%
10:00 EUR Eurozone CPI Y/Y Dec F 1.10% 1.10%
10:00 EUR Eurozone CPI – Core Y/Y Dec F 0.90% 0.90%
13:30 USD CPI M/M Dec 0.30% 0.20%
13:30 USD CPI Y/Y Dec 2.10% 1.70%
13:30 USD CPI Core Y/Y Dec 2.20% 2.10%
13:30 USD CPI Core M/M Dec 0.20% 0.20%
14:15 USD Industrial Production Dec 0.60% -0.40%
14:15 USD Capacity Utilization Dec 75.40% 75.00%
15:00 USD NAHB Housing Market Index Jan 69 70
15:00 CAD BoC Rate Decision 0.50% 0.50%
19:00 USD Fed’s Beige Book
21:00 USD Net Long-term TIC Flows Nov 21.3B 9.4B

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