Trade Optimism And The Recovery In Oil Boosts Risk Appetites

Fed officials by and large seem more constructive on the economic outlook than many investors and economists. Plain-spoken Powell was among the clearest:  there is no sign of elevated risks of a recession. His biggest worry was the slowing of the world economy and China in particular. Given the plethora of measures China is taking to lift the economy, including structural reforms, assuming the government re-opens, the trade tensions with China are resolved, even if the longer-term competitive challenges remain, and the US economy performs like the Fed expects, a rate hike around the middle of the year is very much play. Part of the challenge is policymakers and investors will not have much data during the government shutdown. 

Today's CPI report, like last week's employment data, comes from the Department of Labor, which has already secured its funding. Softer energy prices will likely weigh on the headline, which will be pulled lower from 2.2% in November. It would be the first monthly decline since March. The core rate, though, likely remained firm, and a 0.2% increase on the month will keep the year-over-year rate at 2.2%. 

The cautionary tone by the Bank of Canada earlier this week has failed to dent the Canadian dollar, which has risen every day for the past two weeks, except yesterday. The dramatic rise in oil prices and rising equities (risk-on) appear to be the main drivers. A break of the CAD1.3180 area, the week's low would bring the next technical target near CAD1.3120 into view. The technical indicators are stretched, but there is no sign of a turn yet or divergences.  Still, momentum and trend-followers need to be on guard for a reversal pattern.  

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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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