Follow-Through Dollar Buying After Yesterday's Reversal Tests The Bears

The US economic diary today includes January PPI, retail sales, and industrial production. The minutes from last month's FOMC meeting are released late in the session. A modest 0.2% increase in PPI is expected, which given the base effect, would be consistent with a tick lower in the year-over-year rates. The risk seems to be on the upside. Industrial production likely slowed from December by a 0.5% increase in January, and a 0.7% boost in manufacturing output is still constructive reports. However, the most important time series today is retail sales. Retail sales fell every month in Q4 and are expected to have snapped the decline in January. Note that the Q4 slump in retail sales (cumulative ~-2.2%) translated into a 2.5% increase in consumption in the GDP calculations. Recall that in Q3, 20 retail sales rose by a cumulative 4.2%, and consumption rose 41% in the GDP report. 

Canada reports January CPI figures today. After falling by 0.2% in December, consumer prices are expected to have risen by 0.5% in January. The year-over-year rate likely rose to 0.9% from 0.7%. It has not been above 1% since last February. However, this is seen to be distorted by energy prices, among other factors. The takeaway is that the underlying core measures that the Bank of Canada puts more stock are considerably more stable and higher. 

The US dollar reversed higher yesterday against the Canadian dollar.  It initially approached CAD1.26 before recovering to briefly traded above CAD1.27. Follow-through buying has been limited the greenback to about CAD1.2720 today, seen in both Asia and then again in Europe. Last week, the US dollar ran into resistance in the CAD1.2765-CAD1.2785 area. Initial support is seen near CAD1.2680.The US dollar forged a shelf in the MXN19.90 area and from there launched an assault yesterday on the MXN20.25 area, its highest level since February 5. Buying today lifted the greenback to almost MXN20.2770. The MXN20.50-MXN20.60 area capped the greenback last month and so far here in February.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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