CADJPY awaits the release of Canada's inflation figures

CADJPY is testing an important resistance zone ahead of the release of Canadian inflation and retail sales data. Both sets of figures are going to be scrutinised by the market and could have a significant impact on the CAD. January’s retail sales data will be the last piece of the puzzle for those wanting to estimate how much the economy grew over that month. Tonight’s inflation figures are going to be even more important, as they have been the focus of Bank of Canada Governor Stephen Poloz lately.

Poloz has been very vocal about his concern for the lack of inflation in Canada. In fact, lacklustre inflation was enough to see the Governor remove his predecessor’s rate-hiking signals, with inflation well below the bank’s 2% target. In January, the Consumer Price Index rose 1.5% y/y and core CPI increased 1.4% y/y, which isn’t anything to brag about. And, the figures are expected to soften last month, with headline and core inflation expected to increase 1.0% y/y and 1.1% respectively.  Retail sales are expected to rise 0.7% in January, after falling off a cliff in December due to snow storms.

Given how sensitive the market is to Canadian data, especially inflation figures, and the lack of market moving US economic data out tonight, the inflation and retail sales numbers will take on extra significance. If tonight’s inflation data is even softer than expected, it will increase the chances of the BoC cutting rates in attempt to spur prices, which could hurt the loonie. The opposite may be the case if the numbers are better than expected.

From a technical perspective, CADJPY may be lining up for a push higher if it rebounds off a support zone around its yearly low. There is a bullish crossover in 4-hr MACD and a bullish divergence between price action and RSI (see chart). If it does make a run for it, the pair may run into some resistance around its 21-day SMA, currently around 92.10.

 

Source: FOREX.com