USDCAD TECHS: Southbound

• RES 4: 1.4296 High Apr 7
• RES 3: 1.4111 High Apr 4 
• RES 2: 1.4037 50-day EMA 
• RES 1: 1.4005 High May 12
• PRICE: 1.4004 @ 16:41 BST May 12
• SUP 1: 1.3814/3751 Low May 8 / 6 and the bear trigger  
• SUP 2: 1.3744 76.4% retracement of Sep 25 ‘24 - Feb 3 bull run
• SUP 3: 1.3696 Low Oct 10 2024
• SUP 4: 1.3643 Low Oct 9 ‘24 

USDCAD continues to trade above its recent lows. Despite the recovery, the trend condition remains bearish and short-term gains are considered corrective. A fresh cycle low last Tuesday reinforces the bearish theme. Potential is seen for a move towards 1.3744, a Fibonacci retracement. Note that moving average studies are in a bear mode position, highlighting a dominant downtrend. Key resistance is seen at 1.4037, the 50-day EMA.  

The April CPI report comes at an odd time for US data in general. The data represents the first month of the “Liberation Day” reciprocal tariffs, but even so, not a full month, with expectations that the inflationary impact would not begin to be evidenced for the most part until May or June. But the de-escalation between the US and China on the eve of the April CPI report means that even the May or June data could be considered “stale” as opposed to a harbinger of things to come.

• That doesn’t mean April’s data isn’t relevant – it will set the baseline for the months ahead. In this context it’s worth considering Fed Gov Kugler’s appearance Monday morning in which she continued to see higher inflation (potentially of some permanence) and a slowdown in growth as a result of tariffs, though “not to the same extent as before”. Her view that policy is still “somewhat restrictive” but depending on firms’ behavior, “price increases may be observed soon".
• This suggests that while April’s data could be glossed over as unrepresentative of ongoing inflation dynamics, the risks to an outsized market reaction tilt to the hawkish side. Weaker-than-expected data could be shrugged off as the calm before the storm. Stronger April inflation pressures could be a signal that firms are already raising prices.
• As such, a stronger-than-expected print would suggest even a July cut would look increasingly premature vs the near-50/50 cumulative implied market pricing, as it would take an even longer period for the Fed to receive sufficient “hard” price data to ascertain whether it had room to remove restrictiveness.
• There’s just over two 25bp rate cuts seen by end-2025, with futures eyeing 58bp in reductions by then (3.75%).
• The China-US trade news was worth about one-quarter less of a 25bp cut by end-year in itself, and overall there’s been around one 25bp cut priced out of the futures-implied path to end-2025 since Powell stepped to the podium last week.

• The BLS will update the source data for CPI health insurance this month, sticking to the semi-annual process that it switched to in 2024 from a previous annual adjustment schedule.
• The NSA series increased 0.5% M/M in Oct’24 and averaged 0.35% M/M over Oct-Mar whilst TD Securities look for an average 0.2% M/M through Apr-Sep and Goldman Sachs eye -0.5% M/M for April.
• These aren’t big swings compared to previous resets: the lower estimate from GS would be worth a circa -0.01pps drag from supercore CPI inflation over the upcoming Apr-Sep period vs an average 0.01pp through Oct-Mar.