February’s US CPI rates and BoC’s interest rate decision to shake the American session

Trump’s tariffs on US imports of have come into effect, with the EU responding with a 25% tariff on US products imported, of $28 billion. The issue is tantalizing the markets and is expected to magnify further. It’s characteristic how Trump threatened to impose 50% tariffs on Canadian products, yet pulled the idea back as Ontario also pulled back the idea of imposing a 25% surcharge on exports of electricity in the US. Overall, the issue is expected to enhance the market’s worries and Trump’s speech before the leaders of the 100 largest US companies did little to appease them. Today we highlight the release of the US CPI rates for February which are expected to slow down marginally. A possible wider slow-down could weigh on the USD as it could imply an easing of inflationary pressures in the US economy and would be in line with the weaker-than-expected employment data for February and could exercise pressure on the Fed to ease its monetary policy. On the flip side, an unexpected acceleration of the rates implying a persistence of inflationary pressures could provide asymmetric support for the USD and possibly weigh on US stock markets.

USD/JPY rose yesterday and during today’s Asian session reached the 148.65 (R1) resistance line. Yet despite the rise of the pair, the downward trendline guiding the pair lower since the 10 of January remains intact for the time being allowing us to maintain our bearish outlook. Should the bears remain in control of the pair’s direction, we may see USD/JPY reversing course and breaking the 145.90 (S1) support line, with the next possible target for the bears being the 141.75 (S2) support level. Should the bulls take over, we may see the pair breaking the 148.65 (R1) resistance line, continue to break the prementioned downward trendline in a first signal that het downward motion has been interrupted and start aiming if not reaching the 151.35 (R2) resistance level.

The CAD continued weakening yesterday against the USD, given the US-Canadian trade war which tends to shake Loonie traders. On a monetary level, we highlight the release of BoC’s interest rate decision in today’s American session. The market seems to expect the bank to deliver a 25-basis points rate cut, lowering rates to 2.75%. Currently, CAD OIS imply that the market has almost fully priced in such a scenario to materialise, while the rest imply that the bank could also remain on hold. The market also seems to expect the bank to continue cutting rates further, with the next rate cut possibly being in the June meeting. Hence should the bank cut rates as expected, it could weigh a bit, yet we expect market focus to shift to the bank’s forward guidance and should BoC maintain a dovish tone, it could weigh on the CAD. On the flip side should the bank issue a more hawkish forward guidance, the event could turn to be a hawkish rate cut which could provide support for the Loonie.

USD/CAD continued to rise yesterday and during today’s late Asian session marginally broke the 1.4465 (S1) resistance line, turning it momentarily to a support line. Should the pair continue to rise we would be switching our sideways motion bias in favour of a bullish outlook. Should the bulls take over, we may see the pair aiming if not breaching the 1.4665 (R1) resistance line. A breaking of the 1.4465 (S1) support line would not be sufficient for a bearish outlook as the pair may return to its prior sideways motion between the 1.4465 (S1) support line and the 1.4280 (S2) support level. For a bearish outlook, we would require USD/CAD to break the 1.4465 (S1) support line and continue to break the 1.4280 (S2) support level, with the next possible target for the bears being the 1.4100 (S3) support barrier.

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Today, oil traders may be interested in the release of the EIA weekly crude oil inventories figure, while in tomorrow’s Asian session, RBA Ass. Governor Jones speaks.