Textbook technical setup on USD/CAD forming with top tier events ahead from both the U.S. & Canada. Breakout or fakeout ahead?
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Fresh Market Headlines & Economic data:
- U.S. wholesale prices increased 0.2% in April, PPI shows
- US weekly jobless claims fall less than expected
- China’s food inflation rose 6.1% in April as pork prices spiked
- UK housing market shows scant sign of recovery in April – RICS
- Canada’s merchandise trade deficit with the world narrowed from $3.4B in February to $3.2B in March
- Rate cut needed to protect labour market, says RBNZ
- Japanese consumer confidence index (seasonally adjusted series) in April 2019 was 40.4, down 0.1 points from the previous month
- BOJ will swiftly ease if momentum for hitting price goal lost: Kuroda
Upcoming Potential Catalysts on the Forex Calendar:
- Japan household spending at 12:30 am GMT (May 10)
- RBA monetary statement at 2:30 am GMT (May 10)
- U.K. GDP, manufacturing production & trade balance at 9:30 am GMT (May 10)
- Canada employment change & building permits at 1:30 pm GMT (May 10)
- U.S. CPI at 1:30 pm GMT (May 10)
What to Watch: USD/CAD
The economic calendar will give us one more set of potential volatility catalysts before the end of the week, and the ones we’re watching is the upcoming Canadian employment update and the U.S. CPI update. Both economic updates are essential data points to shaping monetary policy for any country, so surprises there are like to bring a big reaction from traders in their respective currencies.
Speaking of currencies, USD/CAD has been forming a textbook breakout setup, with strong resistance consistently being retested and holding just under the 1.3500 major psychological level, and a pattern of rising ‘lows’ forming along the way. This is normally viewed by traders as a potential upside breakout setup, and if we get a weak update to Canada’s jobs data AND a stronger set of U.S. CPI data, then an upside breakout is less likely to be a fakeout. In this scenario, traders should think about nibbling long positions with the upside momentum, or for the more conservative, wait for a retest of the broken resistance area before going long.
For the bears, a very strong Canadian jobs number and weaker-than-expected U.S. CPI number (currently not expected) would likely yield a bigger move, and if that’s the story that plays out, a break of the rising ‘lows’ pattern would likely draw in momentum sellers, AND/OR profit takers who have been long the USD/CAD rally all week and want to lock in some gains ahead of the the weekend.