BoC's Poloz vows to downplay the fastening inflation in Canada

Forex News and Events:

The US dollar is broadly offered versus G10 and EM currencies after Fed Chair Yellen is back to her dovish camp (where we originally saw her). In her speech yesterday, Yellen said the rates will remain low for longer period of time due to persisting effects of crisis and that the first rate hike is not seen before considerable time after the end of bond purchasing program. The message was clear. In UK, the Cable hit a fresh year high (1.6842) on broad based USD unwind, EUR/USD remains bid despite weak inflation report released in March. The data focus is on Canadian CPI figures today. CAD is weaker amid BoC kept the neutral stance at its policy meeting on April 16th. A positive surprise in CPI (faster-than-expected inflation) should however calm down the appetite for further USD/CAD.

EUR couldn’t care less

The warnings from ECB officials over the past weekend remained dishonorably short-lived. EUR/USD remained well bid above 1.3800, although the opening gap is yet not filled (Friday 11th close at 1.3885). Released yesterday, the final March CPI readings confirmed weakness in Euro-zone inflation dynamics. The headline CPI accelerated at the pace of 0.5% y-o-y, while the core CPI retreated to 0.7%, slightly lower than 0.8% expected. Given the macroeconomic picture, it is hard to believe that the inflation expectations remain anchored (as keeps repeating Mr. Draghi). The positive bias in EUR/USD remained steady throughout the week. EUR is subject to event/comment risk, yet markets are not willing to react to ECB’s verbal intimidations. Traders are no more ready to get caught in fragile EUR shorts in absence of concrete action.

BoC Poloz pledges to downplay the inflation

The BoC kept the policy rate unchanged at 1.00% and remained neutral regarding future policy outlook. The BoC Governor Poloz said he looks to confine the fastening of the inflation as the companies’ investments remain slow. Canada will release March inflation report today. The CPI y-o-y may have accelerated from 1.1% to 1.4%, the core inflation from 1.2% to 1.3%. The BoC policymakers concentrate on the core inflation rate (less volatile) and do not anticipate the core CPI to hit 2% target any time before 2016. Subdued price inflation gives flexibility to keep the policy rates low to sustain recovery. The IMF recommended keeping the looser policy in place given the signs of improvement in exports and investment. The weaker CAD and recovery in US are clearly supportive of exports and business investments. The potential tightening in EM credit conditions led by China has been stated as the new major risk to weaker exports. With roughly 10% of total trade volume, China is Canada’s second biggest trading partner after the US.

USD/CAD advanced to 1.1034 post-BoC and consolidates gains at about 1.1000. Trend and momentum indicators are flat. The inflation report should give a clear direction to CAD later in the day. Quickening inflation gives less flexibility for loose BoC action, thus should limit the sell-off in CAD. Technically, a daily close above 1.1010 will turn MACD (12, 26) positive, suggesting more gains. The key supply zone stands at 1.1038/54 (21 & 50 dma levels).

EUR/CAD consolidates at about 21/50 dma (1.52279/331). The nonchalance of EUR traders regarding the weaker EZ inflation and dovish ECB threats suggests the extension of gains to 1.53450/66 zone (Fib 50% extension of Feb 12th-Mar 19th rally, starting from 4th April).

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Today's Key Issues (time in GMT):

2014-04-17T12:30:00 CAD Mar CPI SA MoM, last 0.30%
2014-04-17T12:30:00 CAD Mar CPI Core SA MoM, last 0.20%
2014-04-17T12:30:00 CAD Mar Consumer Price Index, last 124.1
2014-04-17T12:30:00 CAD Mar CPI NSA MoM, exp 0.40%, last 0.80%
2014-04-17T12:30:00 CAD Mar CPI YoY, exp 1.40%, last 1.10%
2014-04-17T12:30:00 CAD Mar CPI Core MoM, exp 0.30%, last 0.70%
2014-04-17T12:30:00 CAD Mar CPI Core YoY, exp 1.30%, last 1.20%
2014-04-17T12:30:00 USD Apr 12th Initial Jobless Claims, exp 315K, last 300K
2014-04-17T12:30:00 USD Apr 5th Continuing Claims, exp 2778K, last 2776K
2014-04-17T14:00:00 USD Apr Philadelphia Fed Business Outlook, exp 10, last 9

The Risk Today:

EURUSD has broken hourly resistance at 1.3833 and is ready to challenge the resistance at 1.3851 (16/04/2014 high). The short-term technical configuration remains positive as long as the support at 1.3830 (old resistance holds. In the longer term, EUR/USD is still in a dominate uptrend, suggesting additional upside can be anticipated. A significant resistance now lies at 1.3876 (24/03/2014 high).

GBPUSD has breached the fibo level at 1.6823. A solid break above would validated a short-term bullish trend reversal formation. The next resistance can be found at 1.7043 (11/11/2011). The short-term bullish momentum is intact as long as the hourly support at 1.6684 (previous resistance) holds. In the longer term, prices continue to move in a rising channel. As a result, a bullish bias remains favoured as long as the support at 1.6460 holds. A major resistance stands at 1.7043 (05/08/2009 high).

USDJPY has bounced near the key support at between 101.20 and 100.76, As long as the hourly support at 101.80 (intraday low) holds, a further short-term rise is favoured. Hourly resistances are at 102.45 (16/04/2014 high) then a distant 104.21 (04/04/2014 high) A long-term bullish bias is favoured as long as the key support area given by the 200 day moving average (around 100.80) and 99.57 (see also the rising trendline from the 93.79 low (13/06/2013) holds. A major resistance stands at 110.66 (15/08/2008 high).

USDCHF has faded near the hourly resistance at 0.8830 (17/12/2013 low). Monitor the hourly support at 0.8745 (12/02/2014 low). Then, bearish momentum suggests a challenge to key support at 0.8699 (13/03/14). A key resistance lies at 0.8930 (04/04/2014 high). From a longer term perspective, the structure present since 0.9972 (24/07/2012) is seen as a large corrective phase. The recent technical improvements suggest weakening selling pressures and a potential base formation. A decisive break of the key resistance at 0.8930 would open the way for further medium-term strength.

Resistance and Support: