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Highlights:

• Nominal retail sales dipped 0.6% in February following a 2.3% surge in January.
• Weakness was concentrated in motor vehicle sales (likely to be short-lived given strong March unit vehicle sales) and a price-led drop in gasoline station receipts
• Sales volumes inched just 0.1% lower after a 1.4% jump in January.
• 'E-commerce' sales are averaging a whopping 34% above year-ago levels over January and February.

Our Take:

Much of the dip in retail sales in February reflected a price-led drop in gasoline station receipts (gasoline prices fell sharply in February) and a 1.8% drop in motor vehicle and parts sales that is unlikely to be repeated in March given unit sales inching higher in that month from already elevated levels. Excluding those components, sales were up 0.5% to build on an outsized 2.4% jump in January. Overall sales in volume terms inched 0.1% lower but following a large jump in January are still up a solid 4.5% (annualized) on average in the first quarter to-date. Moreover, the headline retail sales numbers exclude much of 'E-commerce' (including internet) sales for which Statistics Canada just began collecting data a year ago. Headline nominal retail sales have averaged a solid 4% above year-ago levels over January and February but E-commerce sales are up a whopping 34% on average over the same period. Employment gains have been solid, consumer confidence has strengthened sharply year-to-date in 2017 and interest rates remain extremely low all of which is consistent with a solid fundamental consumer spending backdrop. Even with the modest dip in February retail sales, there is little to suggest that underlying consumer spending trends are weakening from levels that already accounted for a record share of GDP in 2016.

Following a sharp 2.3% jump in January, Canadian retail sales took a breather in February, sliding 0.6%. In real terms, sales held up a little better, falling by a more modest 0.1%.

The drop was driven largely by weaker sales at gas stations (-3.6%) thanks to lower gas prices, and 1.8% decline in sales at motor vehicles and parts dealers - the first drop in seven months. On the flipside, sales at health and personal care stores, clothing and accessories stores and sporting goods stores were all up by around 2% during the month.

Regionally, the drop was widespread with only Saskatchewan (+0.6%) and New Brunswick (+0.3%) recording gains.

Key Implications

Despite the pullback in February, the massive jump recorded in January leaves retail sales well above the levels seen in the fourth quarter of 2016. As such, it is expected to be supportive of consumer spending and overall economic growth during the first quarter of this year, with the latter currently tracking 3.4% q/q, annualized.

February's setback was driven largely by weaker gasoline prices, with a number of industries posting gains during the month. Retail sales volumes are expected to remain relatively strong going forward, with overall consumer spending expected to grow by a healthy 2% pace over the remainder of this year.

As such, today's report is unlikely to alter the Bank of Canada's view on monetary policy, with the overnight rate expected to remain as is for some time still.

USD/CHF - 0.9943

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Although dollar retreated yesterday to as low as 0.9918, as the greenback has rebounded today, retaining our view that further sideways trading above this week’s low at 0.9893 would take place and another bounce to 0.9981 cannot be ruled out, however, break of 1.0000-08 resistance is needed to signal low is formed instead, bring rebound to 1.0025-30 (61.8% Fibonacci retracement of 1.0108-0.9893), however, price should falter below resistance at 1.0067.

As near term outlook is still mixed, would be prudent to stand aside in the meantime. Below said support at 0.9918 would bring retest of 0.9893 but break there is needed to confirm recent decline from 1.0108 has resumed and extend weakness to 0.9865-70 (2 times extension of 1.0108-1.0008 measuring from 1.0067), however, reckon support at 0.9831 would hold from here, bring rebound later.

GBP/USD - 1.2816

Original strategy :

Buy at 1.2710, Target: 1.2850, Stop: 1.2675

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.2710, Target: 1.2850, Stop: 1.2675

Position : -

Target :  -

Stop : -

Cable has continued trading within near term established range and further sideways trading is in store, whilst another test of Friday’s low at 1.2757 cannot be ruled out, reckon downside should be limited to 1.2700-10 (50% Fibonacci retracement of 1.2515-1.2906) and bring another rally, a break of indicated minor resistance at 1.2859 would signal the pullback from 1.2906 has ended, bring retest of this level, above there would extend recent upmove to 1.2920-30 (2 times extension of 1.2365-1.2575 measuring from 1.2500), then 1.2950 but loss of upward momentum should prevent sharp move beyond 1.2990-00 (1.236 times projection of 1.2109-1.2616 measuring from 1.2365 and psychological resistance). 

In view of this, would not chase this rise here and would be prudent to buy cable on subsequent pullback as downside should be limited to 1.2710 (50% Fibonacci retracement of 1.2515-1.2906), bring another rise. Below 1.2700 would defer and signal top has been formed, risk correction to 1.2660-65 (61.8% Fibonacci retracement of 1.2515-1.2906) and price should stay well above 1.2608-16 (previous resistance now support).

EUR/USD - 1.0882

Original strategy  :

Exit long entered at 1.0900

Position : - Long at 1.0900

Target :  -

Stop : -

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Despite intra-day marginal rise to 1.0951, lack of follow through buying and current retreat suggest consolidation below this level would be seen and downside risk remains for retracement to 1.0870, break there would suggest an intra-day top is formed, bring further fall to 1.0850 but reckon support at 1.0821 would hold from here, bring another rise later.

In view of this, would be prudent to stand aside for now. Only above said resistance at 1.0951 would extend recent upmove from 1.0340 low to 1.0975-80 and possibly towards 1.1000 which is likely to hold on first testing due to loss of momentum, risk from there is seen for a retreat later.

USD/JPY - 111.47

Original strategy  :

Buy at 110.70, Target: 111.70, Stop: 110.35

Position :  -

Target :  -

Stop : -

New strategy  :

Buy at 110.70, Target: 111.70, Stop: 110.35

Position :  -

Target :  -

Stop : -

The greenback surged after finding renewed buying interest at 109.59 and broke above previous resistance at 110.60, adding credence to our view that recent rise from 108.13 low is still in progress and bullishness remains for this move to bring at least a strong retracement of early downtrend, hence further gain to resistance at 111.75-80 would be seen, break would extend gain to 112.00, however, overbought condition should prevent sharp move beyond another previous resistance at 112.20.

In view of this, would not chase this rise here and would be prudent to buy dollar on subsequent pullback as previous resistance at 110.60 should limit downside, bring another rally. Below 110.30-35 (61.8% Fibonacci retracement of 109.59-111.51) would defer and suggest top is possibly formed, risk weakness to 109.80 but break of support at 109.59 is needed to provide confirmation.

Daily Pivots: (S1) 1.0868; (P) 1.0909 (R1) 1.0967; More....

Intraday bias in EUR/USD is turned neutral with 4 hour MACD turned below signal line. A temporary top is in place at 1.0949 after hitting upper trend line resistance. At this point, another rise could be seen as long as 1.0777 support holds. But still, rise form 1.0339 is seen as a corrective move. Hence we'd pay attention to topping signal even if EUR/USD rises through 1.0949. On the downside, below 1.0777 minor support will turn bias to the downside for 1.0569 support first.

In the bigger picture, as long as 1.1298 key resistance holds, whole down trend from 1.6039 (2008 high) is still expected to continue. Break of 1.0339 low will send EUR/USD through parity to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. However, considering bullish convergence condition in weekly MACD, break of 1.1298 will indicate term reversal. this would also be supported by sustained trading above 55 week EMA.

Daily Pivots: (S1) 1.2792; (P) 1.2818; (R1) 1.2863; More...

GBP/USD is still bounded in tight range below 1.2903 temporary top. Intraday bias remains neutral at this point. As long as 1.2614 resistance turned support holds, further rally is expected. Firm break of 100% projection of 1.2108 to 1.2614 from 1.2365 at 1.2871 will target 161.8% retracement at 1.3184. Still, price actions from 1.1946 are seen as a correction. Hence we'd expect strong resistance below 1.3444 to bring larger down trend resumption. On the downside, break of 1.2614 resistance turned support will turn bias back to the downside for 1.2365 support first.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term reversal yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

Daily Pivots: (S1) 110.04; (P) 110.62; (R1) 111.65; More....

Intraday bias in USD/JPY remains on the upside for the moment. Sustained break of 111.58 support turned resistance will indicate that fall from 118.65 is merely a corrective move and has completed. Outlook will then be turned bullish for 115.49 resistance and above. On the downside, break of 109.58 minor support is needed to confirm completion of the rebound from 108.12. Otherwise, further rally is still in favor even in case of retreat.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. Current development suggests that it's not completed yet and is extending. In case of deeper decline, downside should be contained by 61.8% retracement of 75.56 to 125.85 at 94.77 to bring rebound. Rise from 75.56 is still expected to resume later after the correction from 125.85 completes.

Daily Pivots: (S1) 0.9911; (P) 0.9940; (R1) 0.9962; More.....

Intraday bias in USD/CHF is neutral for the moment with 4 hour MACD trending up. At this point, with 0.9999 minor resistance intact, deeper fall is still in favor. Below 0.9897 temporary low will turn bias to the downside for 0.9812 and possibly below. Nonetheless, whole decline from 1.0342 is seen as a correction. Hence, we'll look for bottoming signal below 0.9812. Meanwhile, on the upside, above 0.9999 minor resistance will turn bias back to the upside for 1.0107 resistance.

In the bigger picture, we're still maintaining that firm break of 1.0342 key resistance is needed to confirm underlying bullish momentum in the cross. However, the corrective nature of the fall from 1.0342 is starting to give the medium term outlook a bullish favor. Hence, in stead of looking for topping signal around 1.0342, we'd now pay closer attention to upside acceleration as USD/CHF approaches this level again.