In an otherwise quiet morning for economic data, Canada released its closely-watched CPI data for December. On a headline basis, prices actually fell -0.1% month-over-month as expected, but you can bet that the evening news will latch onto the fact that today’s reading drove Canada’s annual inflation rate to 4.8%, its highest level since 1991!
USD/CAD traders have taken the as-expected print in stride, focusing instead on the general risk appetite in the market and the fact that the price of crude oil (Canada’s most important export) is trading at its highest level since October 2014.
From a technical perspective, the North American pair has confirmed its Head-and-Shoulders pattern by breaking below the neckline at 1.2620, as my colleague Joe Perry anticipated last week. Using a “measured move” projection of 340 pips (the height of the formation) points to a bearish objective near the previous support levels from June and October in the 1.2290 zone:
Source: TradingView, StoneX
It remains to be seen whether USD/CAD will ultimately extend its decline all the way below 1.2300, but as long as oil prices and economic data remains strong, the path of least resistance in USD/CAD remains to the downside. Speaking of economic data, these are the relevant reports to watch for the rest of this week (all times Eastern US):
8:30: US Philly Fed Manufacturing Index
10:00: US Existing Home Sales
11:00: EIA Crude Oil Inventories
All day: Annual World Economic Forum Meetings
8:30: CA Retail Sales
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