USD/CAD down 50 pips on a mediocre set of data
The drop in USD/CAD after Canadian CPI and retail sales is either:
1) A signal that the Canadian dollar momentum is unstoppable. The underlying bid is relentless despite some decidedly mediocre data. A break of Thursday's lows in USD/CAD could set off a capitulation.
2) This is a last-gasp in a market that's gone in one direction for six weeks straight. It's overdone and it won't be sustained until the end of the day, especially with oil lower today.
I can see the arguments either way. You never try to catch a falling knife and USD/CAD is the metaphorical definition of a falling knife after a 1000-pip one-way trade.
That said, this data isn't good enough to justify this market move. Headline inflation fell to 1.0% from 1.3%. Core may have ticked higher but it's rebounding from the worst levels since 1999.
Headline retail sales beat estimates but it was with a negative revision. Meanwhile, core missed estimates and there was a negative revision.
On net, these numbers should be positive for USD/CAD but the market is doing just the opposite. It's awfully tempting to buy the pair here with a tight stop ahead of Thursday's low.
If that doesn't work, I could see a quick fall down to 1.2500 or the 2016 low of 1.2461, so maybe the trade is to sell a break of yesterday's lows.
At the same time, keep an eye on the US dollar because the drama in Washington is a real threat to USD/JPY and the US dollar more generally.
