The forex markets are generally staying in tight range today with Dollar, Euro and Aussie trading with a soft tone. Recent developments in the US is prompting some analysts to push back their expectations on Fed’s hike this year. According to a Reuters poll of dealers, all 14 respondents expected Fed to stand pat in March meeting too. 12 our of 14 expected Fed to hike 0.25% by the end of second quarter. 10 expected interest rate to hit 1.00-1.25% by the end of the year. But only 2 expected interest rate to hit 1.25-1.50%. That is, the majority is expecting Fed to hike only twice this year.

However, San Francisco Fed president John Williams offered some hawkish comments. He noted that "from a risk management point of view, there’s an argument to move sooner, rather than wait." And, he maintained that three hikes is "a reasonable guess, a reasonable perspective to have as a base case." And he noted that "there’s a lot of potential that this economy is going to perhaps get more of a boost than the base case." Chicago Fed president Charles Evans said Friday that while he expected 2 hikes when he submitted his projections back in December, now, he "could see three hikes" and he "could be comfortable with that." As of Friday, fed fund futures were pricing in only 13.3% chance of a March hike and 68.3% change of a hike by June.

In Eurozone, German finance minister Wolfgang Schäuble blamed ECB for making Euro’s exchange rate "too low" and monetary polices that are "too loose" for Germany. He said that "when ECB chief Mario Draghi embarked on the expansive monetary policy, I told him he would drive up Germany’s export surplus…. I promised then not to publicly criticise this [policy] course. But then I don’t want to be criticized for the consequences of this policy." Last week, Peter Navarro, the head of Donald Trump’s new National Trade Council, criticized that Germany exploited the US and EU partners by using a "grossly undervalued" euro.

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On the data front, Japan labor cash earnings rose 0.1% yoy in December, below expectation of 0.4% yoy. Australia retail sales dropped -0.1% mom in December versus expectation of 0.3% mom growth. China Caixin PMI services dropped 0.3 pt to 53.1 in January. The economic calendar is relatively light today with German factory orders, Eurozone retail PMI and Sentix investor confidence featured. Looking ahead, RBA and RBNZ rate decisions are the main focuses of the week and both central banks are expected to stand pat. Here are some highlights for the week:

  • Tuesday: RBA rate decision, Japan leading indicators; Swiss foreign currency reserve; German industrial production; Canada trade balance, building permits, Ivey PMI; US trade balance
  • Wednesday: Japan current account, Eco watcher sentiments; Canada housing starts
  • Thursday: RBNZ rate decision; Japan machine orders; Australia NAB business confidence; UK RICS house price balance; Swiss unemployment rate; German trade balance; US jobless claims
  • Friday: Japan PPI; Australia home loans; China trade balance; Japan tertiary activity index; UK industrial and manufacturing productions; Canada employment; US import price index, U of Michigan sentiment

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.2985; (P) 1.3029; (R1) 1.3065; More

USD/CAD is staying in consolidation from 1.2968 and intraday bias stays neutral for the moment. Overall development affirmed the view that corrective rise from 1.2460 has completed at 1.3598 already, after hitting 50% retracement of 1.4689 to 1.3838. Therefore, deeper decline is expected as long as 1.3168 minor resistance holds. Break of 1.2968 should pave the way to retest 1.2460 low. However, on the upside, break of 1.3168 will mix up the near term outlook and turn focus back to 1.3387 resistance first.

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 could be completed at 1.3598 and fall from there is tentatively seen as the third leg. Break of 1.2460 will target 50% retracement of 0.9460 to 1.4689 at 1.2075 before completing the correction. In case of another rise, we’d look for reversal signal above 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
0:00 JPY Labor Cash Earnings Y/Y Dec 0.10% 0.40% 0.20% 0.50%
0:00 AUD TD Securities Inflation M/M Jan 0.60% 0.50%
0:30 AUD Retail Sales M/M Dec -0.10% 0.30% 0.20% 0.10%
1:45 CNY Caixin PMI Services Jan 53.1 53.6 53.4
7:00 EUR German Factory Orders M/M Dec 0.70% -2.50%
9:10 EUR Eurozone Retail PMI Jan 50.4
9:30 EUR Eurozone Sentix Investor Confidence Feb 16.8 18.2

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