USD/CAD Slips to Fresh Weekly Low; Retail FX Stuck on Wrong Side

Talking Points:

- USD/CAD Slips to Fresh Weekly Low on Canada Retail Sales; Retail FX Stuck on Wrong Side.

- USDOLLAR Weakness to Persist as Fed Rate-Expectations Falter.

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USD/CAD

Chart - Created Using FXCM Marketscope 2.0

• USD/CAD extends the decline from earlier this week, with the pair slipping to a fresh weekly low of 1.2742 as Canada Retail Sales beat market expectations; will keep a close eye on the downside targets following the failed test of the monthly high (1.3143) as the pair continues to carve a near-term series of lower highs & lows.
• Signs of a stronger recovery may encourage the Bank of Canada (BoC) to endorse a wait-and-see approach at the next policy meeting on July 13, and we may see the central bank gradually move away from its easing cycle following the ‘insurance’ rate-cuts in 2015.
• USD/CAD may continue to give back the rebound from May, with a break/close below 1.2740 (50% expansion) raising the risk for a run at the monthly low (1.2653), which coincides with the Fibonacci overlap around 1.2620 (20% retracement) to 1.2650 (50% retracement).

• The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long USD/CAD since June 17, with the ratio hitting an extreme reading back in April as it climbed above +2.00.
• The ratio currently sits at +1.30 as 57% of traders are long, with short positions 10.4% lower from the previous week as open interest stands 4.2% below the monthly average.

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USDOLLAR(Ticker: USDollar):

Chart - Created Using FXCM Marketscope 2.0

• May continue to see a limited market reaction to the semi-annual Humphrey-Hawkins testimony with Fed Chair Janet Yellenas the central bank head largely endorses a wait-and-see approach for monetary policy, with the USDOLLAR at risk of giving back the advance from the May low (11,672) as market participants push out bets for higher borrowing-costs.
• Fed Funds Futures are now showing a less than 10% probability for a rate-hike at the July 27 interest rate decision, but may see interest-rate expectations continue to deteriorate over the near-term as central bank officials appear to be in no rush to further normalize monetary policy.
• Break/close below the Fibonacci overlap around 11,745 (50% retracement) to 11,759 (23.6% retracement) may expose the next downside area of interest coming in around 11,623 (100% expansion) to 11,646 (61.8% retracement).

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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