USD/CAD Rangebound As Inflation Improves

Today’s Commentary
USD/CAD Commentary
The U.S. dollar slipped lower against the Canadian dollar yesterday after Federal Reserve Chair Janet Yellen reassured investors that the central bank intends to keep interest rates low for an extended period.

The U.S. dollar weakened slightly after Ms. Yellen said Monday that “considerable slack” still remained in the U.S. labor market and reiterated that the Fed’s commitment to economic stimulus will still be needed for some time.

Overall market sentiment continued to be underpinned by hopes that China will implement fresh stimulus measures to shore up the cooling economy.

In Canada, data on Tuesday showed that Canadian producer price inflation jumped in February as higher fuel prices and a weaker Canadian dollar pushed prices up. Statistics Canada reported that the raw materials purchase price index rose 5.7% in February, ahead of expectations for a 2.3% gain, as crude oil prices spiked higher. The industrial product price index rose 1.0%, beating expectations for a 0.7% increase. Energy and petroleum product prices climbed 2.4% in February, as gasoline and diesel fuel prices jumped. The report said that the 1.0% decrease in the value of the Canadian dollar against the U.S. dollar in February may have had the effect of increasing the industrial product price index.

With the lack of any tier one data prints out of Canada market analysts expect the CAD to trade on broad market themes today. Thursday’s international trade numbers and Friday’s employment data releases are key fundamental data points for the CAD and will provide direction in the short term.

Short term technicals are neutral with support located at 1.1001 while resistance is located at 1.1135.

Today’s expected trading range is 1.0975 – 1.1075
EUR/USD Commentary
The EUR/USD remained relatively range bound yesterday trading on both sides of the 1.3800 level as eurozone PMIs did better than expected and German jobs data reported an improvement with unemployment ticking down.

The euro-zone manufacturing PMI for March was confirmed at 53, lower than 53.2 seen in February, however, the average reading for the first quarter reached highs not seen since the second quarter of 2011.

Other data showed German unemployment fell by more than expected in March, while the euro-area unemployment rate held at 11.9%, but was better than the 12% that economists expected. Unemployment for the European Union fell to 10.6%, from 10.7% in January.

The European Central Bank will meet on Thursday, as the region skirts as close to deflation as it’s been in more than four years. The euro rose Monday after data showed inflation in the region falling to 0.5% on an annual basis in March. Economists have mixed opinions about whether the ECB will ease, and what tool it will use, if it does anything at all.

Investors are sitting on the fence as to whether the ECB will announce any fresh stimulus measures later this week. The single currency could weaken if there are any further signals that ECB easing is required and as such market analysts are betting against the EUR as we head toward the ECB announcement.

Short term technicals have shifted to a more bearish stance with initial support at 1.3730. Markets are bracing for a volatile session today as we head into Thursday’s ECB announcement.

Today’s expected trading range is 1.3700 – 1.3850
GBP/USD Commentary
The GBP/USD weakened yesterday to close in the 1.663’s after manufacturing PMI dipped below forecast but remained in a positive zone. The pound took a hit against the dollar earlier after data showed that the pace of the recovery in the U.K. manufacturing sector slowed unexpectedly in March.

The Markit U.K. manufacturing purchasing managers’ index fell to an eight-month low of 55.3 last month from a downwardly revised 56.2 in February. Analysts had expected the manufacturing index to tick up to 56.7. While short of expectations, the index came in over 50, which signifies expansion, and the sector continues to drive job creation, which cushioned losses.

The BoE minutes showed that the committee will remain vigilant to emerging vulnerabilities in UK housing market and will take proportionate, graduated action if warranted. UK Mortgage Approvals dropped by around 6,000 to 70,300 during February, according to a report from the Bank of England yesterday. The minor blip is not unlikely to last long in the minds of traders and won’t have a noticeable impact on the Sterling exchange rate. However, it could help ease fears that a bubble is forming in the UK housing market.

For the most part Sterling continues to trade on broad market themes. Today the U.K. is to produce private sector data on house price inflation, as well as official data on construction activity.

Short term technicals continue to remain mixed with support located at 1.6466 while resistance is located at 1.6684.

Today’s expected trading range is 1.6575 – 1.6725

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