Morning Commentary & Currency Insights – February 22, 2018

Statements from FED member Bullard & the FOMC minutes caused a whipsaw movement in equity and FX markets yesterday that eventually led to a stronger U.S. dollar prevailing while equities declined. “St. Louis Federal Reserve President James Bullard cautioned that investors may be “getting ahead of themselves” in anticipating four rate hikes from the central bank this year.” (Bloomberg)  with the FOMC minutes noting, “Members agreed that the strengthening in the near-term economic outlook increased the likelihood that a gradual upward trajectory of the federal funds rate would be appropriate,” (Bloomberg).  Initial reactions saw equities spike higher while the dollar dropped nearly 1% against some currencies however these moves were completely reversed by the end of the NY trading session as players continue to look for sustained rate hikes from the FED.

USD/CAD was caught up in this movement dropping to 1.2625 then reversing course and trading above 1.2700 for the first time in 2018.  While technical indicators are becoming stretched to the top side it appears to have little effect on USD bullish sentiment.  Today’s Canadian retail sales data is expected to show a gain of 0.1% month over month with a divergence of 0.2% or more on either side of that likely to prompt a pronounced binary move in the currency.  Support below currently resides at 1.2625 with resistance above at 1.2725.