Article Highlights

  • Canadian retail sales up 2.2% vs. 1.5% forecast in Jan
  • Canadian core retail sales up 1.7% vs. 1.3% consensus for Jan
  • U.S. current account deficit narrowed from $117B to $112B vs. $129B forecast
  • Fed official Mester: Incorporated fiscal stimulus in projections
  • Mester: More than three rate hikes possible for 2017
  • Russia open to extending production cut deal for six more months
  • New Zealand GDT auction yielded 1.7% rebound in dairy prices
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Not even upbeat medium-tier data and a few hawkish remarks from Fed officials were enough to keep the Greenback afloat as U.S. equities tumbled as well.

Major Events:

Upbeat Canadian retail sales – Economic data from Canada turned out mostly stronger than expected, as the January headline retail sales figure rose 2.2% versus the projected 1.5% gain while the core version of the report printed a 1.7% increase versus the 1.3% consensus.

Components of the January report revealed that the pickup was mostly spurred by motor and vehicle parts dealers, which reported their fourth increase in five months. Sales at health and personal care stores rose 6%, followed by a 1.8% gain in sales at general merchandise stores and a 1.3% increase in receipts at food and beverage stores. In fact, ten out of the 11 subsectors printed gains for the month while purchases of sporting goods, hobby, books, and music stores dipped 0.1%.

Hawkish Fed rhetoric – A couple of Fed officials reiterated their optimistic outlook for the U.S. economy, with Cleveland Fed President Loreta Mester even suggesting that there’s room for more than three interest rate hikes this year.

Mester pointed out that the U.S. economy is on solid footing and that it has achieved full employment from a monetary perspective. She did admit that she already built a bit of fiscal stimulus into her projections even though there has been very little detail provided by the Trump administration so far. She also mentioned that the FOMC has discussed balance sheet adjustments but clarified that this shouldn’t be a substitute for interest rate changes.

Meanwhile, Fed official George acknowledged that the market focus could shift to the balance sheet from here since the central bank has come to a critical decision point. Although she isn’t a voting member this year, she noted that the Fed needs to be careful not to tighten too quickly but also not to let the economy overheat.

Crude oil updates – Black Crack made a quick pop higher on reports that Russia is open to the idea of extending production cuts for another six months as OPEC members are doubting that their output deal is having a material impact on oil prices.

However, the gains were quickly erased when the American Petroleum Institute reported that stockpiles increased by 4.529 million barrels in the U.S. versus the projected gain of 2 million barrels. With that, market participants are now pricing in another larger than expected buildup for the EIA report due later on this week. So much for that slight dip the other week!

Major Market Movers:

CAD –  The Loonie was another big loser for the day as it failed to benefit from strong Canadian retail sales and caved to weak crude oil action instead.

USD/CAD popped up from a low of 1.4264 to a high of 1.3369, CAD/JPY broke below the 84.00 handle to a low of 83.43, EUR/CAD is up to 1.4436, and GBP/CAD advanced from 1.6591 to 1.6684.

Watch Out For:

  • 4:30 am GMT: Japanese all industries activity index (0.1% expected, -0.3% previous)

See also:

London Session Recap

Asian Session Recap

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