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Canada retail sales rose 3.2% mom to CAD 58.9B in January, better than expectation of 2.4% mom. The increase was led by higher sales at motor vehicle and parts dealers (+5.3%), as sales at new car dealers (+5.5%) rebounded.

Sales were up in 9 of 11 subsectors, representing 85.5% of retail trade. Core retail sales—which exclude gasoline stations and motor vehicle and parts dealers—increased 2.9%.

In the advance estimate, retail sales dropped -0.5% mom in February.

Full release here.

The USDJPY regained traction and probes again above 119.00 barrier, driven by fresh safe-haven buying on renewed pessimism over the crisis in Ukraine, while yen was deflated by dovish BOJ.

The Japanese central bank kept rates unchanged and maintained massive stimulus due to very high uncertainty over Ukraine that warns of growth risk.

Break of the target at 118.66 /60 (tops of Dec 2016 / Jan 2017) exposed Fibo barrier at 119.50 (76.4% of 125.84/98.99), violation of which would risk acceleration above psychological 120 resistance.

The pair is on track for the second strong weekly rally, with studies on both, daily and weekly chart, maintaining strong bullish momentum and supporting the action.

Bulls so far ignore overbought conditions on daily chart, but some corrective action could be expected in coming days.

Broken pivots at 118.66/60 reverted to solid supports, with deeper dips to find footstep above rising 10DMA (117.30) and keep larger bulls intact.

Res: 118.45; 118.66; 119.00; 119.50.
Sup: 118.66; 118.36; 117.70; 117.30.

In a statement, St. Louis Fed President James Bullard explained by he voted for a 50bps rate hike on March 16 FOMC meeting, instead of 25bps. Additional, in the Summary of Economic Projections, he penciled in more rate hikes to 3% this year.

"The combination of strong real economic performance and unexpectedly high inflation means that the Committee's policy rate is currently far too low to prudently manage the U.S. macroeconomic situation," he said. "Moreover, U.S. monetary policy has been unwittingly easing further because inflation has risen sharply while the policy rate has remained very low, pushing short-term real interest rates lower. The Committee will have to move quickly to address this situation or risk losing credibility on its inflation target."

Bullard also compared to what Fed did back in 1994 and 1995, where FOMC "made a similar discrete adjustment to the policy rate to better align it with the macroeconomic circumstances at that time". And, the results were excellent".

Full statement here.

Eurozone goods exports rose 18.9% yoy to EUR 199.5B in January. Imports rose 44.3% yoy to EUR 226.7B. Trade deficit reached EUR -27.2B. Intra Eurozone trade rose 24.2% yoy to EUR 192.3B.

In seasonally adjusted terms, exports rose 3.4% mom to EUR 220.3B. Imports rose 2.3% mom to 228.0B. Trade deficit narrowed from EUR -9.7B to EUR -7.7B. Intra-Eurozone trade dropped from EUR 202.0B to EUR 198.7B.

Full release here.

EURAUD found strong resistance level at the 1.5330 barrier, which acted as a turning point to the price, holding the pair beneath the 20-day simple moving average (SMA) as well. Currently, the price is testing the 23.6% Fibonacci retracement level of the down leg from 1.6235 to 1.4560 at 1.4953 and any falls below it would endorse the short- and medium-term bearish outlook.

The RSI indicator is falling further in the negative territory, while the MACD successfully surpassed above its trigger line, but it remains below the zero line, both suggesting more losses.

Should bearish dynamics dominate, the market might revisit the 1.4560 bottom before meeting the 1.4420 low in July 2017. Below that, the area around 1.3620, which halted downside corrections on February 2017 could another potential barrier in focus.

Alternatively, if the price manages to rebound above 1.4353, the 38.2% Fibonacci of 1.5195, which overlaps with the 20-day SMA could come next. A violation of this point may shift the attention towards the 1.5330 resistance and the 50.0% Fibonacci of 1.5390 ahead of 1.5445. A decisive close above the latter and hence above the 40-day SMA would increase speculation of a retest of the 61.8% Fibonacci of 1.5590.

In the medium-term picture, the downfall from 1.6235 is still active and hence the outlook remains negative. The 20-day SMA has further increased distance below the 40-day SMA, hinting that the downward pattern might hold for longer.

To summarize, EURAUD’s bias looks negative both in the short and the medium term.

The Canadian dollar continues to rally and has gained over 1% this week. We’ll get a look at Canadian retail sales later in the day.

Retail sales predicted to bounce back 

After a rough start to the week, the Canadian dollar has reversed directions and posted three winning days, as the US dollar has retreated against the majors. The war in Ukraine has sapped risk appetite, which has weighed on the Canadian dollar. However, this has been largely mitigated by the surge in oil and other commodities prices, as Canada is a major exporter of commodities.

The Canadian currency’s upswing could well continue on Friday if retail sales for January perform as expected. Both the headline and core readings are expected to climb 2.4% MoM. In December, Retail Sales fell by -1.8% and Core Retail Sales plunged -2.5%, as holiday shopping was hampered by the Omicron virus.

The Federal Reserve finally pressed the lift-off button for a rate-tightening cycle, and the Bank of Canada is expected to follow suit. Both central banks are under pressure to relieve sizzling inflation, which has hit 40-year highs in Canada and the US.  The markets have priced in up to six more hikes this year, as the BoC will have to be aggressive in order to wrestle inflation back to its target range of one-to-three per cent. The quandary for Bank policymakers is that inflation is not being fed by economic growth, and fears of stagflation means that the BoC will have to be cautious to avoid choking off growth due to sharp rises in interest rates.

With the FOMC meeting out of the day, the markets are refocused on the war raging in Ukraine. Russia continues its assault even while negotiating, but the markets are hoping that this time the talks will lead to a breakthrough that will end the fighting. We’ve seen these hopes dashed before, but the optimism has renewed risk appetite and pushed the US dollar lower. Any signs of progress in the talks will likely extend the US dollar’s downswing.

USD/CAD Technical

• USD/CAD faces resistance at 1.2653 and 1.2777
• There is support at 1.2562 and 1.2438

GBPUSD has bounced back from its March low of 1.2999, crossing above its 50-period simple moving average (SMA) as positive momentum resurfaced. However, the pair is currently trading well below its 200-period SMA and hasn’t yet broken its series of successive lower lows, reinforcing an overall bearish outlook.

Short-term momentum oscillators reflect a positive bias as the RSI is located above its 50 neutral mark. Also, the MACD is found above zero and its red signal line, which indicates that the positive momentum in the price might be gaining further ground.

Should the bulls manage to gain a tight grip, initial resistance might be found at the 1.3194 obstacle, before buyers eye the February low at 1.3271. Crossing above the latter could increase positive momentum, paving the way towards the 200-period SMA currently at 1.3389.

On the flip side, if sellers regain full control, the 50-period SMA currently at 1.3098 might act as the first line of defence. Crossing below this point, the bears might then target the 1.3066 hurdle before taking aim at the March low of 1.2999.

In brief, despite the recent uptick from the March lows and the improved bias, the overall outlook for the pair remains cautiously bearish. For sentiment to change, the series of successive lower lows in the price must stop.

USDCAD is currently challenging the long-term ascending trend line and the 200-day simple moving average (SMA) around the 1.2600 psychological mark. The price is showing some signs that it would be a penetration of the diagonal line, suggesting the start of a neutral outlook.

According to the technical indicators, the MACD oscillator dived beneath its zero line, strengthening its momentum below trigger line, while the RSI is falling below the neutral threshold of 50. The 20- and 40-day SMAs are ready for a bearish crossover, confirming the recent move.

In case the pair changes its direction to the downside, the bears will probably challenge the previous bottom at 1.2580. A break lower, could last until 1.2450 before moving lower towards the 1.2285 support, taken from the low in October 2021.

Alternatively, a rebound off the uptrend line may drive the price towards the 20- and 40-day SMAs at 1.2730. Above the latter, the 1.2875 resistance, which rejected the market’s actions recently could be another level in focus ahead of the 14-month high of 1.2960.

Summarizing, USDCAD maintains a bearish phase in the short-term picture, and if there is a successful drop beneath the rising trend line it could change the long-term outlook to negative as well.

Markets

US stock markets gained over 1% yesterday as risk sentiment improved during US dealings. Kremlin fake news reports on progress in Ukrainian peace talks initially caused some hesitance. US secretary of state Blinken later also openly doubted Russia’s diplomatic efforts to end the war.

News that Russia completed a coupon payment on international debt, avoiding external default, was later met with some optimism. EUR/USD tested 1.1121 resistance. The pair’s reaction function since Wednesday’s FOMC meeting suggests a stronger bottom below EUR/USD. The dollar failed to eke out additional gains on a hawkish Fed despite additional short term interest rate support.

The euro from his part finally enjoys ECB backing since last week’s actions/intentions. Expect a significant EUR/USD relief rally the day we finally get some real positive cease-fire news on Ukraine. Taking out EUR/USD 1.1121 would put us back in the old 1.1121/1.1483 range.

EUR/GBP rose from 0.8392 to 0.8435 in a technically insignificant move. First resistance stands at 0.8478. Gains probably could have been bigger following the Bank of England’s “dovish” policy rate hike (0.50% to 0.75%). The BoE toned down forward guidance on future hikes slightly because of the squeeze on UK households’ disposable income. It caused a huge outperformance of UK Gilts in a bull steepening move. UK yield dropped by 1.7 bps (30-yr) to 11.4 bps (2-yr). Changes on the German curve were insignificant, varying between +1 bp and -1 bp. US yield changes ranged between -3.7 bps (5-yr) and +1.7 bps (30-yr).
 
The Bank of Japan kept its policy unchanged this morning (see below) while downgrading the eco outlook. The BoJ is in absolutely no hurry to follow the global policy normalization swing. Japanese inflation remains low, but nevertheless rose to its highest level since February 2020. National CPI ex fresh food this morning printed at 0.6% Y/Y, up from 0.2% in January and beating 0.5% consensus. The BoJ’s stance leaves the yen vulnerable. USD/JPY earlier this week briefly exceeded the 119 big figure for the first time since early 2016. A weekly close above USD/JPY 118.66 makes way for a return to the 2015 high at 125.86.

Today’s eco calendar is empty. Much attention will go to the call between US President Biden and Chinese president Xi Jinping. The US is worried about China siding with Russia in the conflict and won’t hesitate to impose sanctions if China effectively does so. General risk sentiment will be decisive today. Keep a close eye on energy prices as well with Brent crude yesterday and this morning gaining $10/b from $100 to $110.

News Headlines

There were no changes in the Bank of Japan’s policy parameters after holding a meeting today. The base rate remains at -0.10% and the 10y target at 0%. The BoJ did downgrade its economic assessment just two months after it was upgraded. While it cited the impact of Covid, the central bank also flagged the war in Ukraine. It is monitoring in particular the effects from it on inflation, saying it expects it to “clearly” rise on soaring energy prices. Some warn inflation may reach 2% this year with base effects also kicking in from April and with the recent weakening of the yen (especially vs the USD) acting as an accelerator. The cost-push nature of such inflation against a weakening economic background limits the scope for the BoJ for a tightening move.

Chinese president Xi Jinping made a pledge to keep the economic collateral damage from its Covid-Zero policy at a minimum, but probably won’t give up that strategy any time soon. China will “strive to achieve the maximum prevention and control effect at the least cost and minimize the impact of the epidemic on economic and social development,” he said at the country’s top financial policy committee at a time millions of people are in lockdown. The comments can be seen as part of the vow China made earlier to stabilize financial markets and stimulate the economy.

EUR/USD

The level at 1.1126 appeared to be a strong resistance for the bulls to overcome and the outlook for today’s trading session is for the pair to breach through the support at 1.1044 and to head towards a test of the next significant zone at 1.0980. However, if the bulls manage to regain control over the market and overcome the resistance at 1.1126, then it is most likely to witness an impulsive move towards the resistance at 1.1231. A short consolidation in the range of 1.1044 – 1.1126, before the market finds a clear direction, should still not be excluded as well. During today's trading session, the most important economic news that would be of interest to the market participants will be the U.S. existing home sales data (14:00 GMT).

USD/JPY

The greenback rally paused below the resistance of 118.84, which comes from the higher time frames, and the market may need more time to breach this level before the upward movement is restored. At the time of writing, the pair is consolidating in the range of 118.19 – 118.84, and in case the lower band is breached, then this may lead to a deepening of the corrective move and a test of the support at 117.80.

GBP/USD

The currency pair is consolidating in the range of 1.3095 – 1.3191 as the bulls could not violate the resistance at 1.3191. A possible scenario for today’s trading session is for another attack on the mentioned level and a successful breach here would pave the way for the pair towards the resistance at 1.3269. However, if the bears manage to take control over the market, then we may expect a downward movement towards the support at 1.3095, followed by another decline towards 1.3050.

EUGERMANY40

The strong rally of the German index was limited to just below the resistance at 14502 as the bulls couldn’t gain enough momentum to violate this zone. The sentiment is rather negative – for a move towards the support at 14062, where a breach of this level would most probably lead to sell-offs towards the support at 13531. Only a confirmed breach of the resistance at 14502, however, would lead the price towards the next resistance level at 14788.

US30

The resistance zone of 34523 remains unshakable, and at the time of writing, we are seeing the index retreat towards the support of 34100. In the event of a breach of the mentioned support, we may observe a deepening of the sell-off, which may lead the price towards the next significant support area of 33779. Only a confirmed breach of the resistance at 34523, however, would lead the price towards the next resistance level at 35037. During today’s session, the situation in Ukraine will continue to dictate the market sentiment and volatility will most likely remain elevated.