USD/CAD Slips Despite Strong Building Permit Data

On Wednesday, the dollar edged lower than the Loonie and weaker against most major currencies. The move comes despite stronger than expected housing data. Traders took profits on their short-positions in Treasury yields, allowing the curve’s long end and short end to ease. In December, U.S. building permits jumped 9.1% as pend up demand buoyed housing starts.

Technical Analysis

The USD/CAD edged lower and is hovering just below the 200-day moving average which was former support. Resistance is seen near the 10-day moving average at 1.2570. The 10-day moving average crossed below the 50-day moving average, which means a short-term downtrend is in place. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal. The exchange rate is oversold as the fast stochastic prints a reading of 11, below the oversold trigger level of 20. Medium-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in negative territory with a downward sloping trajectory which points to a lower exchange rate.

Building Permits Surge

Permits for future homebuilding jumped 9.1% to a rate of 1.873 million units in December. Permits for buildings with five units or more soared 19.9% to a rate of 675,000 units. Single-family building permits rose 2.0% to a rate of 1.128 million units. Housing starts rose 1.4% to a an annual rate of 1.702 million units last month, the highest level since March.

Silver Prices Surge as Yields Pull Back

Silver prices surged higher on Wednesday after a strong first part of the week. US stocks remain flat as U.S. Treasury yields soar. Investors are pricing in the Fed rate hikes of over a 25-basis point increase in  March. The 10-year yield surged to 1.9% and hovers around 2-year pre-pandemic highs. The 2-year yield curve also held near 2-year highs but slightly retreated. Although gold edged higher to 1,840, surging yields will cause downward pressure on gold and cause it to stay in the range of 1,800.

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Technical Analysis

On Wednesday, silver prices continued to push higher. Resistance is seen near the 200-day  moving average at 24.65. Support is seen near the 100-day moving average at 23.28. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. Prices are now overbought. The fast stochastic is printing a reading of 97, above the overbought trigger level of 80. Medium-term momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD signal line (the 9-day moving average of the MACD line).

Housing Starts Data Rises

Private housing starts in December were at 1.702 million up 1.4% from November. The data exceeded expectations and indicates optimism in the residential housing market. Even though December is usually a slower month, elevated demand for housing has led to continued increasing market activity. The higher-than-expected reading is positive for the USD. A stronger dollar is negatively correlated to silver prices.

 

Natural Gas Prices Tumble Ahead of Inventory Report

On Wednesday, natural gas prices tumbled ahead of Thursday’s inventory report from the Department of Energy. Expectations are for a 173 Bcf draw in stockpiles, according to survey provider Estimize. According to a recent National Oceanic Atmospheric Administration report, much colder than normal weather is expected to cover most of the Mid-West and North East, and warmer than average weather will cover most of the West Coast for the next 8-14 days. The EIA expects LNG exports will continue to rise in 2022 and 2023.

Technical Analysis

On Wednesday, natural gas prices tumbled 5.7%. Prices sliced through support which is now resistant near the 200-day moving average at 4.07. Support is seen near the December lows at 3.53. Short-term momentum is negative as the fast stochastic generated a crossover sell signal. Medium-term momentum is positive but decelerating as the MACD (moving average convergence divergence) histogram is printing in positive territory with a declining trajectory which points to consolidation.

LNG Exports are Expected to Rise

The Energy Information Administration forecasts that U.S. liquefied natural gas exports averaged 9.8 billion cubic feet per day in 2021, compared with 6.5 Bcf/d in 2020. The EIA expect U.S. LNG export capacity increases will contribute to LNG exports averaging 11.5 Bcf/d in 2022 and 12.1 Bcf/d in 2023.

Gold Prices Surge Breaking Out of January Range

Gold prices surged higher as the dollar eased and yields slipped. The dollar index pulled back, which helped buoy the yellow metal. Despite hitting a pre-pandemic high on Tuesday, the long end and short end eased, allowing the dollar to consolidate. U.S. Housing starts hit a 9-month high.

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Technical Analysis

Gold prices moved surged higher on Wednesday. Support is seen near the 10-day moving average at 1,1815   Resistance is seen near the November highs at 1,877. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. Prices are overbought as the fast stochastic is printing a reading of 97, above the overbought trigger level of 80. Medium-term momentum is positive as the MACD (moving average convergence divergence) index has generated a crossover buy signal. This situation occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in positive territory with a declining trajectory which points to consolidation.

Homebuilding Surges to a 9-month High

Housing starts rose 1.4% to a an annual rate of 1.702 million units last month, the highest level since March. Data for November was revised slightly lower to a rate of 1.678 million units from the previously reported 1.679 million units. Housing starts totaled 1.595 million in 2021, up 15.6% from 2020. Expectations were for housing starts to fall to a rate of 1.650 million units.

Silver Prices Buck the Trend and Rally Above Key Resistance

Silver prices moved higher on Tuesday despite weakness in gold prices. Silver seemed to buck the trend despite a stronger dollar. U.S. Treasury yields surged. The U.S. interest rate markets are now pricing in 4-basis point hikes in 2022, with a 70% chance of a 4th hike. The 10-year yield hit the highest level in more than 2-years above pre-pandemic highs. The 2-year yield curve also made a pre-pandemic high. The higher yields are putting downward pressure on some commodities, but those focused on growth seemed to benefit.

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Technical Analysis

On Tuesday, silver prices moved higher and pushed above short-term resistance. The former resistance support is seen near the 50-day moving average at $23.15. Resistance is seen near the 200-day  moving average at 24.65. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. Prices are now overbought. The fast stochastic is printing a reading of 88, above the overbought trigger level of 80. Medium-term momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover sell signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD signal line (the 9-day moving average of the MACD line).

The Dollar Rises as Treasury Yields Surge

On Tuesday, the dollar edged higher versus the Loonie. The softer than expected Canadian Housing Starts weighed on the Canadian currency. The U.S. 2-year and 10-year U.S. Treasury yields remained at elevated levels, both hitting pre-pandemic levels. In the U.S., interest rate traders are now pricing in 100-basis points of rate hikes in 2022.

Technical Analysis

The USD/CAD was nearly unchanged, edging slightly higher. Support is seen near the 200-day moving average at 1.25. Resistance is seen near the 10-day moving average at 1.2598. The 10-day moving average crossed below the 50-day moving average, which means a short-term downtrend is in place. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. Medium-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in negative territory with a downward sloping trajectory which points to a lower exchange rate.

Housing Starts Slide

Housing starts clocked in at 236,106 on an annualized basis, a 22% drop from November, the Canada Mortgage and Housing Corporation reported Tuesday. The agency also revised November’s data up from 301,279 to 303,813 units annualized.

Natural Gas Prices Rally Cold East Coast Weather

On Tuesday, natural gas prices continued to rise. According to a recent National Oceanic Atmospheric Administration report, much colder than normal weather is expected to cover most of the Mid-West and North East, and warmer than average weather will cover most of the West Coast for the next 8-14 days. Production increased in the latest week as a result of imports from Canada.

Technical Analysis

On Tuesday, natural gas prices rallied, 1%. Support is seen near the 50-day moving average at 4.30. Resistance is seen near the January highs at 4.50. The 10-day moving average crossed above the 200-day moving average which means that a short-term uptrend is now in place. Short-term momentum is positive as the fast stochastic generated a crossover buy signal. Medium-term momentum is positive as the MACD (moving average convergence divergence) histogram is printing in positive territory with an upward sloping trajectory which points to higher prices.

Supplies Rose in the Latest Week

U.S. total natural gas supply increases week over week as a result of higher net imports from Canada. According to data from the EIA, the average total supply of natural gas rose by 0.7%  from a week ago. Dry natural gas production decreased by 0.6% from the previous report week, but average net imports from Canada more than offset this decline by increasing 25.1% from last week.

Gold Prices Slip as the Dollar Surges

Gold prices moved lower, pulling back to support. The dollar surged higher, and as Treasury yields surged. The U.S. interest rate markets are now pricing in 4-basis point hikes in 2022, with a 70% chance of a 4th hike. The 10-year yield hit the highest level in more than 2-years above pre-pandemic highs. The German  ZEW survey showed a larger than expected improvement in expectations.

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Technical Analysis

Gold prices moved lower on Tuesday. Support is seen near the 10-day moving average at 1,1811   Resistance is seen near the January highs at 1,829. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal. Medium-term momentum is positive as the MACD (moving average convergence divergence) index has generated a crossover buy signal. This situation occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in positive territory with a declining trajectory which points to consolidation.

German ZEW Improves

Germany’s ZEW survey showed that expectations improved but a more pessimistic assessment of the current situation. The ZEW measures of expectations rose to 51.7 from 29.9. It is the highest since last July. The current situation was marked down to -10.2 from -7.4.

USD/CAD Hovers Above Key Support Levels

On Monday, the dollar was nearly unchanged versus the Loonie, but activity was very light as most markets in the United States were closed due to the Martin Luther King holiday. The 2-year and 10-year U.S. Treasury yields remained at elevated levels. Market participants are torn between elevated levels of inflation and softer than expected economic data, which might result from higher inflation levels. The PBOC allowed their one-year lending rate to decline. In the U.S. interest rate traders are now pricing in 100-basis points of rate hikes.

Technical Analysis

The USD/CAD was nearly unchanged. Support is seen near the 200-day moving average at 1.25. Resistance is seen near the 10-day moving average at 1.2616. The 10-day moving average crossed below the 50-day moving average, which means a short-term downtrend is in place. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal. The exchange rate is oversold as the fast stochastic is printing a reading of 17, below the oversold trigger level of 20. Medium-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in negative territory with a downward sloping trajectory which points to a lower exchange rate.

China Allows Rates to Slide

The PBOC allowed the one-year lending facility rate to ease by 10 basis points to 2.85%. It is the first reduction since April 2020. The move follows mixed data which saw a beat on GDP, but softer than expected Retail Sales and Fixed-Asset Investment.

Natural Gas Prices Edge Higher as Cold Weather Sets in

On Monday, natural gas prices continued to rise, edging slightly higher. The activity was very light and only in the electronic market due to the observance of the Martin Luther King holiday. According to a recent National Oceanic Atmospheric Administration report, much colder than normal weather is expected to cover most of the Mid-West and North East, and warmer than average weather will cover most of the West Coast for the next 8-14 days.

Technical Analysis

On Monday, natural gas prices rallied, 0.6%. Support is seen near the 10-day moving average at 4.13. Resistance is seen near the 50-day moving average at 4.3. The 10-day moving average crossed above the 200-day moving average which means that a short-term up trend is now in place. Short-term momentum is positive as the fast stochastic generated a crossover buy signal. Medium-term momentum is positive as the MACD (moving average convergence divergence) histogram is printing in positive territory with an upward sloping trajectory which points to higher prices.

The EIA Believes Prices will Remain Near $4

The Energy Information Administration reported in its January Short-Term Energy Outlook that the natural gas spot price at the U.S. benchmark Henry Hub will average $3.79 per million British thermal units in 2022, slightly less than its 2021 average of $3.91. Natural gas prices increased between March and early October 2021, but they declined in the last three months.

Gold Prices Edge Higher on Chinese GDP Beat

Gold prices edged slightly higher on Monday, but there was little activity in the North American trading session due to the observance of the Martin Luther King Holiday. The dollar also moved slightly higher, and the Treasury market was unchanged. The U.S. interest rate markets are now pricing in 4-basis point hikes in 2022, with a 50% chance of a 4th hike. There is also some talk of a 50-basis point hike as early as March.

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Technical Analysis

Gold prices moved slightly higher on Monday. Support is seen near the 10-day moving average at 1,1812   Resistance is seen near the January highs at 1,831. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal. Medium-term momentum has turned positive as the MACD (moving average convergence divergence) index has generated a crossover buy signal. This situation occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line).

Chinese GDP Grows More than Expected

Chinese GDP increased 1.6% quarter-over-quarter in Q4 and 8.1% year over year. The median forecast was for 1.2% growth quarter over quarter and 6% year oer year. China released a deluge of data, including softer than expected retail sales, a miss on fixed asset investment, and better than expected Industrial production.

USD/CAD Rebounds Despite Soft U.S. Data

On Friday, the dollar rebounded versus the Loonie as U.S. Treasury yields rallied. The increase in the 2-year yield pulled the yield differential in favor of the greenback. The move-in Treasury yields come despite weaker than expected U.S. data. Retail Sales, Import Prices and Industrial Production all fell short of expectations.

Technical Analysis

The USD/CAD moved higher on Friday but finished the week in the red. Support is seen near the 200-day moving average at 1.25. Resistance is seen near the 10-day moving average at 1.2640. The 10-day moving average crossed below the 50-day moving average, which means a short-term downtrend is in place. Short-term momentum has turned negative as the fast stochastic generated a crossover buy signal. Medium-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in negative territory with a downward sloping trajectory which points to a lower exchange rate.

Import Prices Decline

Import prices dropped 0.2% last in December, the first decrease since August, after increasing 0.7% in November,. In the 12 months through December, prices rose 10.4% after advancing 11.7% in November. Expectations had been for import prices, which exclude tariffs, gaining 0.3%.

Silver Prices Slide on Weak Industrial Production Figures

Silver prices moved lower on Friday but finished the week in the black up 2.3%. The dollar rebounded on Friday, putting downward pressure silver prices. U.S. Treasury yields rallied despite mixed economic data. The 2-year Treasury yields hit a pre-pandemic high while the interest rate curve flattened. Retail sales were softer than expected as online spending declined. Import prices dropped while industrial production unexpectedly fell.

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Technical Analysis

On Friday, silver prices moved lower as the precious metals complex turned lower. Resistance is seen near the 50-day moving average at $23.19. Support is seen near the 10-day moving average at 22.76. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal. Medium-term momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover sell signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD signal line (the 9-day moving average of the MACD line).

Industrial Production Unexpectedly Declines

Industrial production fell 0.1% in December compared with the previous month, the Federal Reserve reported Friday. Expectations had been for factory output to grow 0.2% during the month. In November, industrial production rose by an upwardly revised 0.7%.

Natural Gas Prices Rebound on Cold Weather Forecast

On Friday, natural gas prices rebounded slightly after tumbling on Thursday. The week’s prices were up 1.5% but had large daily moves. On Wednesday, prices were up 14% followed by a 12% decline on Thursday. According to a recent National Oceanic Atmospheric Administration report, much colder than normal weather is expected to cover most of the Mid-West and cooler than normal will hover over the North East for the next 8-14 days.

Technical Analysis

On Friday, natural gas prices rallied, 1.5%. Support is seen near the 10-day moving average at 4.08. Resistance is seen near the 50-day moving average at 4.3. The 10-day moving average crossed above the 200-day moving average which means that a short-term up trend is now in place. Short-term momentum is negative as the fast stochastic generated a crossover sell signal. Medium-term momentum is positive as the MACD (moving average convergence divergence) histogram is printing in positive territory with an upward sloping trajectory which points to higher prices.

Production Rise in 2021

U.S. production of dry natural gas averaged an estimated 93.5 Bcf per day in 2021, up 2% from 2020. Natural gas production fell in 2020 as a result of low natural gas and oil prices that reduced drilling activity. Production grew in 2021 as drilling activity came back online, especially in the Permian Basin, where associated gas production in that region contributed to the overall growth in natural gas production.

Gold Prices Slip as Treasury Yields Rise to Fresh 23-Month Highs

Gold prices edged lower for the second consecutive trading session edging back toward the breakout support level. Despite the pullback, gold prices were higher by 1.1% for the week. The dollar rebounded on Friday, putting downward pressure on the yellow metal. U.S. Treasury yields rallied despite mixed economic data. The 2-year Treasury yields hit a pre-pandemic high while the interest rate curve flattened. Retail sales were softer than expected as online spending declined.

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Technical Analysis

Gold prices eased slightly, edging back toward support. Prices retreated to a downward sloping trend line that comes in near $1,821. Additional support is seen near the 200-day moving average at 1,800.   Resistance is seen near the January highs at 1,831. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal. Medium-term momentum has turned positive as the MACD (moving average convergence divergence) index has generated a crossover buy signal. This situation occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line).

Retail Sales Fall More than Expected

The Commerce Department on Friday reported that U.S. Retail sales fell much more than expected in December. To close out the year, the advance monthly sales report showed a decline of 1.9%, considerably worse than expectations for a 0.1% drop. Excluding autos, sales fell 2.3%, which also fell well short of expectations for a 0.3% rise. In addition to the weak December numbers, the November gain was revised down to 0.2% from the initially reported 0.3% increase. Online spending took the biggest hit as a share of overall spending, with nonstore retailers reporting a plunge of 8.7% for the month.

The USD/CAD Decline Below the 200-day Moving average on Soft PPI

The dollar continued to trend lower versus the Loonie, as U.S. Treasury yields finally declined. A softer than expected U.S. Wholesale price report in conjunction with a larger than expected rise in U.S. jobless claims weighed on the greenback.

Technical Analysis

The USD/CAD moved lower on Thursday slipping through support which his now short-term resistance near the 200-day moving average at 1.25. Support is seen near the October lows at 1.2285. The 10-day moving average crossed below the 50-day moving average which means a short-term downtrend is in place. Prices are oversold as the fast stochastic is printing a reading of 10, below the oversold trigger level of 20. Medium-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in negative territory with a downward sloping trajectory which points to a lower exchange rate.

 Core PPI Missed Expectations

Core PPI increased 0.4% for the month, below the 0.5% estimate. PPI for food and energy both fell during the month, declining 0.6% and 3.3%, respectively. The producer price index, which measures wholesale prices, was up 0.2% for the month, half the 0.4% expected. When measuring PPI year over year it came in at 9.7%, the highest increase going back more than a decade. Separately, initial jobless claims for the week ended January 8 totaled 230,000, well above the 200,000 estimates and a considerable increase from the previous week’s 207,000. Continuing claims, fell by 194,000 to 1.56 million, the lowest level since June 2, 1973. The four-week average for claims was 210,750, an increase of 6,250 from the previous week but still below the pre-pandemic level.

Silver Prices Consolidate Breaking 3-day Winning Streak

Silver prices edged lower after breakout out on Wednesday. Prices consolidated along with the rest of the precious metals complex. The dollar continued to move lower, which helped buoy prices. U.S. Treasury yields declined following a softer than expected U.S. PPI figure. U.S. Jobless claims moved up more than expected, but continuing claims hit a pre-pandemic low.

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Technical Analysis

On Thursday, silver prices edged lower breaking a 3-day winning stream. Resistance is seen near the 50-day moving average at $23.22. Support is seen near the 10-day moving average at 22.81. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. Prices are overbought as the fast stochastic is printing a reading of 84, above the overbought trigger level of 80. Medium-term momentum has turned positive as the MACD (moving average convergence divergence) index generated a crossover sell signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD signal line (the 9-day moving average of the MACD line).

Jobless Claims Rose More than  Expected

Initial jobless claims for the week ended January 8 totaled 230,000, well above the 200,000 estimates and a considerable increase from the previous week’s 207,000. Continuing claims, which run a week behind the headline, fell by 194,000 to 1.56 million, the lowest level since June 2, 1973. The four-week average for claims was 210,750, an increase of 6,250 from the previous week but still below the pre-pandemic level.

Natural Gas Prices Tumble Following Inventory Draw

On Thursday, natural gas tumbled, giving back most of the gains it experienced on Wednesday. The move in the price of natural gas came despite a larger than expected draw in natural gas inventories. According to a recent National Oceanic Atmospheric Administration report, Cool-weather is expected to cover most of the Mid-West and North East for the next 8-14 days.

Technical Analysis

On Thursday, natural gas prices rallied, tumbled, falling 12% after rallying 13% on Wednesday. Prices retraced back to support near a downward sloping trend line at 4.33. Resistance is seen near the November highs at 5.02. Short-term momentum is negative as the fast stochastic generated a crossover sell signal. Medium-term momentum is positive as the MACD (moving average convergence divergence) histogram is printing in positive territory with an upward sloping trajectory which points to higher prices.

Inventories Decline More than Expected

According to the Department of Energy, natural gas in storage was 3,016 Bcf as of Friday, January 7, 2022. This level represents a net decrease of 179 Bcf from the previous week. Expectations were for a 133 Bcf draw in stock according to survey provider Estimize. Stocks were 199 Bcf less than last year at this time and 72 Bcf above the five-year average of 2,944 Bcf. At 3,016 Bcf, total working gas is within the five-year historical range.

Gold Prices Retreat Back to Trend Line Support

Gold prices edged lower after breakout out on Wednesday. The dollar continued to move lower, which helped buoy the yellow metal. U.S. Treasury yields declined following a softer than expected U.S. PPI figure. The wholesale price inflation numbers follow Wednesday’s stronger than an expected consumer price index.

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Technical Analysis

Gold prices eased slightly, breaking a 4-day winning streak. Prices retreated to a downward sloping trend line that comes in near $1,823. Additional support is seen near the 200-day moving average at 1,800.   Resistance is seen near the January highs at 1,831. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal. Medium-term momentum has turned positive as the MACD (moving average convergence divergence) index has generated a crossover buy signal. This situation occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line).

PPI Came in Softer than Expected

The producer price index, which measures wholesale prices, was up 0.2% for the month, half the 0.4% expected. When measuring PPI year over year it came in at 9.7%, the highest increase going back more than a decade. The monthly gain was a sharp drop-off from the two previous months, which showed gains of 1% in November and 0.6% in October. Excluding food, energy, and trade, the core PPI increased 0.4% for the month, below the 0.5% estimate. PPI for food and energy both fell during the month, declining 0.6% and 3.3%, respectively.

USD/CAD Declined Sharply Testing Key Support

The dollar moved sharply lower on Wednesday following a strong CPI report in line with expectations. U.S. Treasury yields were mixed as the 2-year yield moved higher and the 10-year edged lower, which caused curve flattening. Consumer prices rose to a 50-year high on a year-over-year basis. The Fed Beige Book was released on Wednesday. Consumer spending grew at a modest pace.

Technical Analysis

The USD/CAD moved lower on Wednesday testing support is seen near the 200-day moving average at 1.25. Resistance seen near the 10-day moving average at 1.2669. The 10-day moving average crossed below the 50-day moving average which means a short-term downtrend is in place. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal. Prices are oversold as the fast stochastic is printing a reading of 2, below the oversold trigger level of 20. Medium-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in negative territory with a downward sloping trajectory which points to a lower exchange rate.

The CPI Index Hit a 50-Year High

On Wednesday, the Bureau of Labor Statistics released its Consumer Price Index. Headline inflation at the consumer level was 7% year over year. Monthly figures increased by 0.5%. These figures were the highest level of inflation since 1982. Expectations were for CPI to increase  7% on an annual basis and 0.4% from November. Excluding food and energy, the so-called core CPI was up 5.5% on the year, the biggest growth since February 1991.