FX traders were rocked out of complacency after US inflation data surprised to the top. January CPI rose 2.1%, y/y, unchanged from December but handily beating forecasts for a dip to 1.9%.  Core CPI was unchanged from December at 1.8%, but that number was also higher than the forecasts.

The US dollar exploded higher.  USDCAD blasted through resistance at 1.2615 and 1.2630, touching 1.2648.  Today’s data supports the view that Canada interest rate increases will lag those of the US.

EURUSD plunged to 1.2277 from 1.2348 as short US dollar positions got squeezed. Longer term, today’s data did nothing to change the outlook that ECB policy normalization risks outweigh those of US rate hikes.

Sterling got cracked hard as well.  GBPUSD had attempted to recover from a European sell-off due to fresh Brexit concerns.  GBPUSD fell from 1.3919 in Asia to 1.3840 in Europe and had climbed back to 1.3890 just before the US data. It sank to 1.3801 on the news.

USDJPY saw a brief flurry of activity around the CPI data and then settled close to pre-data levels (109.20. Overnight, JPY pushed through support at 107.40, triggering stop losses and dropped to 106.85, a two-year low. The subsequent rally halted at 107.40.  The price action occurred even though the Nikkei 225 lost 0.41%.

Also in Asia, NZDUSD kicked off broad US dollar selling after the RBNZ’s Quarterly Inflation Expectations rose to 2.1% from 2.0% earlier.  NZDUSD climbed from 0.7274 to 0.7334 but drifted lower during the European session, opening in New York at 0.7313.  AUDUSD tracked Kiwi movements but is close to flat at the open, compared to yesterday’s close.

.Oil prices declined in Asia after the API reported another rise in US Crude inventories. Prices attempted to rally but resumed sliding in Europe on fears of fresh supply/demand imbalances..

USDCAD Technical outlook:

The intraday USDCAD technicals are in a uptrend while trading above the 1.2550-60 level and is looking for a break of  1.2565-70, the downtrend line from December to target 1.2920.  Only a move below 1..2550 will negate the topside pressure.  For today, USDCAD support is at 1.2610 and 1.2560.  Reistance is at 1.2650-70 and 1.2720.

Today’s Range 1..2580-1.2660