Bond traders resume selling after FOMC minutes. USD rallies broadly on higher US yields. Canadian Retail Sales on deck

CXI February 22nd, 2018

Summary

USDCAD: All eyes this morning will be on the Canadian Retail Sales numbers for December, which will be released at 8:30amET. Markets are expecting - 0.1% MoM and no change MoM on the Ex-autos subcomponent. USDCAD closed NY trading yesterday right at 1.2700, which was the next resistance level on the charts after the 1.2660-1.2680 resistance level gave way post FOMC minutes. The knee jerk reaction after the release of the FOMC minutes yesterday was to buy bonds and sell the USD, which in our opinion wasn’t surprising considering the hawkish tilt to market expectations going into the release and the fact that we really didn’t learn anything new. We know the Fed is now thinking about “further” gradual rate increases. Then all of a sudden, bond traders changed their minds and took prices to new swing lows and the USD followed US yields higher across the board. We think the pronounced downtrend in US bond prices was the culprit here, and when the post release bounce in bond prices failed to hold, it was a signal to keep selling. Why the USD latched on the rising US yields all of sudden was a bit of a puzzle, given the breakdown recently in the correlation. Either way, yesterday demonstrates a marketplace that wants to sell bonds and buy USD right now. USDCAD benefited from the broad based USD strength. The chart technicals going into this morning’s trade are a bit mixed after USDCAD failed on a rally attempt above 1.2710 in early European trade. Support lies at 1.2660-1.2680. A disappointing Retail Sales number will likely see USDCAD break higher. A positive number would invite some selling here. EURCAD and GBPCAD had weak NY closes yesterday, and that’s adding a little bit of weight to USDCAD right now too.

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