EUR/USD: Sell At 1.1040

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EUR/USD: Sell At 1.1040

• Federal Reserve Vice Chairman Stanley Fischer said there is no plan to use negative rates in the United States, though the matter is under study. He added it is still unclear whether the recent downturn in global financial markets will have any substantial impact on the US economy.

• He repeated that he feels it would be "appropriate" if the economy ran at more than full employment for a period of time. "A modest overshoot," of full employment would ensure people who want to rejoin the labor force or work more hours get a chance to do so, Fischer said, and could also help ensure the Fed reaches its 2% inflation goal.

• Kansas City Fed President Esther George, who is a voting member this year on the Fed's rate-setting committee, said the Fed should consider raising interest rates at its next policy meeting in March. George said volatility in financial markets, if sustained, could give policymakers pause. But she said the US economic outlook has not changed fundamentally since December when the Fed signaled it could hike rates four times this year.

• Neel Kashkari, the new chief of the Minneapolis Federal Reserve Bank, said he expects the US economy to grow at a "moderate" pace this year, although he sees both upside and downside risks to that forecast. Kashkari's remarks Tuesday suggest little differentiates his views from those of the center of the Fed's policy-setting committee. "Moderate" is the term used by the Fed in its most recent statement to describe the pace of US economic growth this year.

• Dallas Fed President Robert Kaplan said the Fed may need to keep US interest rates unchanged for an "extended period" to give inflation time to rise back to the central bank's 2% target. Kaplan does not vote on Fed policy-setting until 2017, but takes part in its regular meetings.

• Signs of a slowdown in the global economy and whipsawing financial markets have led investors to bet against rate hikes anytime soon. Prices for US fed funds futures suggest investors see little chance of any increases this year. In our opinion expectations for Fed interest rate path are too dovish. In our opinion one hike still is possible in the first half of the year and the Fed is likely to accelerate with monetary tightening in the second half of 2016.

• The Conference Board said Tuesday that its US consumer confidence index dipped to 92.2 this month, down from a reading of 97.8 in January, which had been a three-month high. The February reading was the lowest since confidence stood at 91.0 in July. Lynn Franco, director of economic indicators for the Conference Board, said the continued turbulence in financial markets could be depressing confidence. But he said views on current conditions, even with the February decline, remained at levels that suggest the economy will keep growing at a moderate pace in coming months.

• The EUR/USD broke below a key support level of 1.1000. We have placed a sell order near 1.1044 (50% of 1.0711-1.1377) and see a risk for a drop to the cloud which spans 1.0792-1.0878, but this strategy is risky. The nearest important support levels are 1.0965 (61.8% fibo of 1.0711-1.1377 rise) and 1.0950 (50% fibo of 1.0523-1.1377 rise).

USD/CAD: Loonie Weakens With Oil Retreat

• The CAD lost ground against its US counterpart yesterday as oil prices fell and risk appetite faded.

• Oil prices lost strongly after Saudi and Iranian oil ministers poured cold water on hopes for a coordinated move to limit production amid a global supply glut. Big oil exporters Saudi Arabia and Russia have proposed to freeze output at January levels, which were near record highs, but only if other producers also do the same. Saudi Oil Minister Ali Al-Naimi ruled out production cuts. He said more meetings on the potential freezes would be held in March.

• What is more, the American Petroleum Institute said crude inventories rose 7.1 million barrels in the week to February 19 to 506.2 million, far exceeding market expectations for an increase of 3.4 million barrels. The API report fueled drops in oil market.

• Weaker stock markets were an additional headwind for the risk-sensitive commodity currency. The loonie’s strongest level of the yesterday’s session was 1.3694, while its weakest level was 1.3820.

• Canada's Liberal government warned it would run much bigger budget deficits than previously anticipated, as lingering low commodity prices weaken the country's growth outlook. Finance Minister Bill Morneau said the 2016-17 budget gap would be CAD 18.4 billion, with a 2017-18 deficit of CAD 15.5 billion. Morneau said despite the weak state of the economy, he would stick to plans to invest in infrastructure projects. Financial markets showed little reaction to the budget figures.

• Bank of Canada Deputy Governor Lawrence Schembri will deliver a speech on Wednesday, addressing the topic of elevated household debt and the risk to financial stability.

• We went USD/CAD short yesterday at 1.3800. The nearest resistance area is 1.3832/46 and the support area is 1.3654/69.