Source: Pixabay

May 14, 2012

US Retail Sales unchanged

Central bankers downplay inflation risks

US dollar opens lower, but will end the week with gains

USDCAD open 1.2139-43, Overnight range 1.2111-1.2177, Previous close 1.2161

FX Week at a Glance

FX Recap and Outlook

Headline US Retail Sales were unchanged in April.  Analysts were expecting a 1.0% m/m increase. Retail Sales, ex-auto’s fell 0.8% m/m, well below the forecast of a 0.7% gain.  Some of the disappointment was offset by better than expected Import and Export price data.  The US dipped modestly following the news.

Equity traders got over their fear of inflation yesterday.  Wall Street closed with gains across the board, led by a 1.22% rally in the Dow Jones Industrial Average.   The major Asia equity indexes rallied, and Japan’s Nikkei 225 closed up 2.32%.  European stock markets are modestly higher as are S&P futures. Wall Street needs to rally  a lot higher to close the week where it started.  Oil and gold prices are modestly higher and 10-year Treasury yields have dipped to 1.637% Wall Street is poised to end the week well below Monday’s opening level.

Source: KoyFin

The US dollar opened in NY with small losses, led by a 0.25% rise in EUR, but is poised to finish the week with gains against the major G-10 currencies.  AUD and NZD were hardest hit, losing 1.76% and 1.25%, respectively.  The Canadian dollar was the best performer as it only lost 0.12%.

Traders are cautious ahead of this morning’s US Retail Sales data, which is expected to have risen 1.0% in April.  The risk is for an upside surprise to the forecast as the American economy reopens.

EURUSD climbed from 1.2072 in Asia to 1.2128 by mid-morning in Europe, then drifted lower into the NY opening. The gains were due to softer 10-year US Treasury yields and the limited reaction to yesterday’s US PPI report.   Fed officials continue to maintain that inflation increases are due to base-rate effects and are temporary.  EURUSD technicals are bullish above 1.2050, looking for a break above 1.2180 to target 1.2250.

GBPUSD chopped about in a 1.4038-1.4075 range but with a bullish bias. Traders are looking to retest resistance at 1.4200, in a move supported by the rejection of losses below major support in the 1.4000 area. Yesterday’s remarks by  Bank of England Governor Andrew Bailey have underpinned the currency. He said that they are already seeing a strong UK recovery, higher inflation will not persist, and the interest rate outlook would not change remarkably.

USDJPY continues to consolidate its post-US CPI gains, trading in a 109.26-109.65 range overnight. US inflation fears underpin prices

AUDUSD consolidate earlier losses in a 0.7716-45 range and trades with a negative bias below 0.7760. AUDUSD is undermined by a drop in iron ore prices after reports China has told steel manufacturers to control price surges or face stiff penalties. NZDUSD outperformed its Australian cousin even though NZ Manufacturing PMI dipped to 58.4.

USDCAD popped to 1.2201 yesterday after Bank of Canada Governor Tiff Macklem said that if the Canadian dollar continued to appreciate, it could be a headwind for exports.  That is akin to saying, “the sun rises in the east.” Prices quickly retreated and have a negative bias below 1.2160.  USDCAD dipped from 1.2130 to 1.2104 after Canada Manufacturing and Wholesale Sales data rose higher than expected.

USDCAD Technical Outlook

The intraday USDCAD technicals are bearish below 1.2210 with a move below 1.2090 opening a retest of the 1.2050 pivot area.  A decisive break below 1.2050 could see a drop to 1.1440.  However, as long as prices are above 1.2050, a return to 1.2660 is possible.  For today, USDCAD support is at 1.2090 and 1.2050.  Resistance is at 1.2160 and 1.2210.  Today’s Range 1.2090-1.2190.

Chart: USDCAD daily

Source: Saxo Bank

FX open, high, low, previous close

Source: Saxo Bank