2017 ended with the US dollar in full-retreat and 2018 has started the same way.

The week before and immediately after Christmas, was characterized by poor liquidity. Many participants rolled the Christmas/New Years break into a two-week vacation.

A series of weaker-than expected US data releases, including November Durable Goods orders (Actual 1.3% vs forecast 2.0%), Michigan Consumer Sentiment (Actual 95.9 vs forecast 97.1) knocked the US dollar for a loop.

Between December 22 close and this morning’s 6:00 am opening levels, the US dropped against all the majors.  The Swiss franc was the biggest gainer, followed by the Euro.

The dollar’s decline may have been exacerbated by month end/year end portfolio rebalancing flows. The outperformance of US equity indices vis a vis Canada and Europe suggests US dollar selling occurred, in less than optimum liquidity conditions.

2018 has begun and the outlooks for the  Federal Reserve and ECB are key.  The Fed has pencilled in three rate hikes for 2018 with some analysts prediction four. The US dollar is not getting any support from the prospect of rising rates or even more gains in US equities, thanks to Trump’s tax plan.

Instead, FX markets are focused on the ECB and expectations for an end to quantitative easing by September 2018. If traders are concerned that Separatists are back in control in Spain’s Catalonia region or about the March 4 Italian elections, it is not reflected in the price of EURUSD.

The Canadian dollar is on a tear.  USDCAD dropped 1.73% since December 22.  The move was fueled by broad US dollar weakness soaring oil prices and domestic data.  Strong Retail Sales and CPI reports were offset by a weaker than expected October  GDP report (0.0 vs forecast 0.2%)  Still; many participants are looking for a rate hike this month (They are dreaming)

A big rally in WTI oil prices hs provided added support to the Canadian dollar.  WTI climbed from $57.87 on December 22 to $60.71 today, before pulling back.   Unrest in Iran and supply disruptions from Libya are behind the move.

The US dollar retreat may take a breather today.  The greenback is ripe for a profit taking bounce following the sizeable moves in the past few days, especially ahead of Friday’s nonfarm payrolls data. Canada’s employment report is also due on Friday.

Today’s US and Canadian data is of the second tier variety and should not have an impact on trading.

USDCAD Technical outlook:

The intraday USDCAD technicals are bearish.  The well-defined downtrend from the December 19 peak of 1.2917 has survived numerous tests and remains intact while prices are below 1.2570, looking for a break below 1.2510 to extend losses to 1.2440.  Longer term, the failure to break above the 1.2915-20 area and the subsequent break of support at 1.2650 and 1.2590, now targets 1.2360.  The breach of 1.2740 snapped the uptrend line from September.   For today, USDCAD support is at 1.2510 and 1.2460.  Resistance is at 1.25

Today’s Range 1.2490-1.2590

Chart: USDCAD Daily