Euro-Dollar awaits inflation reportBy Arnaud Masset
US inflation numbers for February will print later today: core consumer prices are expected to stabilise at 1.8% per annum, with the headline index rising to 2.2% from 2.1% in January. February’s retail sales will be release tomorrow. This is the last inflation report before the US Federal Reserve’s monetary policy meeting in March FOMC. We remain sceptical about an upside surprise in inflation, but if it happens, markets will react strongly.
EUR/USD has this week been trading sideways around 1.2420: resistance lies at 1.2446 (high from 8 March), with downside support at 1.2273 (low from 9 March). We maintain our bullish medium-term view on the pair. However, we expect the greenback to appreciate against the Swiss franc and the Japanese yen as investors continue to load on risk.
US consumer prices surprised to the upside in January: the headline printed at 2.1% per annum versus 1.9% expected, while the core measure, which excludes the most volatile components, came in at 1.8% versus a forecast 1.7%. Investors reacted strongly in expectation of a steeper path of interest-rate hikes. This triggered a US dollar rally that fizzled when retail sales came in well below expectations.
Jobs boost CADBy Vincent-Frédéric Mivelaz
Currently at 1.2855, USD/CAD has been stable this year, rising 2.47% and approaching resistance at 1.3015 (high of 5 May 2017). The pair is expected to be event-driven for the time being; the last event was Canada’s job report, published on Friday.
Canadian unemployment is 5.8%, a level not seen since the 1970s. February employment rose 15’400 following a January decline of 88’000, mainly boosted by an increase in part-time jobs. Hourly earnings remained solid, up 3.10% (previous month 3.30%), signalling a deceleration in the job market. As negotiations with the USA and Mexico over the North American Free Trade Agreement continue, they will be a key indicator of Canada’s economic health. If no deal is reached, both Canada and Mexico will be hit by US tariffs on steel and aluminium, losing their privileged status.