The economic data along with what is happening in Ukraine is keeping us all on our toes. Last night the BoJ came up with the plan to peg the yields at 0.25%, sending the yen higher and the USDJPY lower. Today’s inflation data from Canada added to the USDCAD weakness that we had seen in the Asia-Pac session much to the delight of the EURUSD longs.
Canadian consumer prices rose 6.7% in March, a percentage point more than in February (+5.7%). This was the largest increase since January 1991 (+6.9%). In March, prices rose in all eight of the major components, indicating widespread inflationary pressure. During this period, prices were driven up by sustained price pressure on Canadian housing markets, substantial supply constraints, and geopolitical conflict that impacted energy, commodities, and agriculture markets.
Additionally, employment strengthened in March, as the unemployment rate dropped to a record low. The average hourly wage for employees rose 3.4% in March over the same period last year.
As inflation has been rising the Bank of Canada has attempted to cool the economy by raising rates in 2022. The last rate hike was a 50bps move but today’s inflation reading is showing a rise of 1.4% MoM. For the central bank to get ahead of inflation they may have to consider going harder on their rate hikes.
The US dollar has been weak for the majority of the day but the Canadian dollar surged higher on the inflation news. This brought the USDCAD down to a level of imbalance, so it is possible that this marks the end of the broad move. We could now be going sideways until the FOMC meeting next month.
That being said, the ActivTrader sentiment indicator shows a very crowded bullish trade, so a test of the significant low at 1.2400 may be the level used to stop the majority of these traders out.
The other significant news that affected the US dollar today would have been the numbers for existing-home sales in the United States, which declined by 2.7% in three of the four major regions nationwide. The 5.77 million figure is the second month in a row we have seen a decline.
The sales dropped by 4.5% year on year in all four regions. Due to slower demand, the inventory of unsold existing homes increased 11.8% to 950,000 at the end of March, while the median existing-home sales price increased 15% from March 2021 to $375,300.
The rising cost of living and increases in interest rates are starting to show up in the economic data but at present sales are seeing increases of double-digit percentage gains.
The $100 level may have to act as solid resistance again as we have cleared the gap on the DXY chart and now we’re probing the imbalance that stems from $99.50. There is also a rising trend line that we can consider possible support, though a breakthrough that, with a retest from the opposite side is a bearish setup.
The EURUSD benefitted from a weakening greenback and the price action rallied into a significant Fib level. I still have a higher level to test at 1.0900 but at the London close, 1.0855 was proving to be a hard level to break through.
For several months the Russell 2000 has been leading the large-cap indices lower, but today, the small-cap index had breached an old weekly low and is on course to backfill up to 2100. The price action is now making higher swing highs and higher swing lows, so the hope is that these stocks can recover and help lift the likes of the Dow and S&P500 in the future.
We’re currently in earnings season and big misses in companies like Netflix have so far been absorbed. The other leading stocks I monitor are also doing poorly today. Facebook (Meta), Tesla and Amazon are down -7.44%, -4.29% and -2.30% respectively. Of the 6 largest weighted corps in the Nasdaq, Microsoft is currently the only in green, but that is just barely.