Canada Inflation was better than expected. The Consumer Price Index (CPI) rose 2.0% year over year in December, easily beating the 1.7% y/y forecast. Core inflation rose 1.7%.  (forecast 1.5%)  The monthly data showed a drop of  0.1%m/m, beating the forecast of a 0.4% decline. 

USDCAD sank, dropping from 1.3270 to 1.3235 but quickly rebounded to 1.3250.  The better than expected inflation data, firm oil prices and rising equity markets should support a lower USDCAD from current levels.

West Texas Intermediate (WTI) oil prices surged 3.4% since yesterday, and the Loonie just yawned. USDCAD drifted within a 1.3240-1.3310 range the entire week, which is a rather stellar performance compared to the rest of the G-10 majors, since Monday’s New York open.   The Japanese yen and Swiss franc are down the most against the US dollar, losing 1.1%. The Australian dollar is unchanged, and the Canadian dollar is only marginally higher.  GBPUSD is the big winner, gaining 0.81% on Brexit developments.

The International Energy Agency released their monthly Oil Market Report today.  They predicted that global oil demand growth would remain at 1.4 million barrels per day in 2019 and noted that global supply dropped by 950,000 b/d in December.

There is a mildly positive risk tone to FX and global equity markets.  Yesterday’s Wall Street Journal said US Treasury Secretary Steven Mnuchin proposed easing sanctions on China to calm markets and spur negotiations.  The White House denied the story.  Nevertheless, global equity traders must have thought that “where there is smoke there is fire.”  The major global stock market indices are all substantially higher.  The Dow Jones may open with triple-digit gains if US equity futures hold their gains.

GBPUSD could not crack 1.3000 overnight and be unable to hang on to its post-Brexit and no-confidence vote gains.  Prices dropped steadily for most of the European session, aside for a minor blip higher.  Weaker than expected UK December Retail Sales data (Actual -0.9% vs forecast -0.8%) didn’t help.

This morning’s US data includes December Industrial Production (forecast 0.2%) and Michigan Consumer Sentiment Index (forecast 97.0, previous 98.3)  Monday is a holiday in the US. 

USDCAD Technical Outlook

The intraday USDCAD technicals arebearish while prices are below1.3250, looking for a break below 1.3230  to extend losses to 1.3160  A break above 1.3180 targets 1.33340.  For today, USDCAD support is at 1.3220 and 1.3180,  Resistance is at 1.3280 and 1.3320.

Today’s Range 1.3180-1.3280