In addition to this morning’s German retail and unemployment reports, GDP growth in the US and Canada, as well as US jobless claims were likely drivers of price action in the EURUSD and USDCAD pairs.
With the exception of USDJPY, currencies and equities were trading slightly higher as better-than-expected German retail sales and the lack of panic on the first day that Cyprus reopened its banks eased concerns in the financial markets and helped stabilize the euro (EUR).
The strict capital controls put in place have gone a long way toward preventing Cypriot bank runs today. Also, the slightly weaker US economic reports didn't cause too much of a stir in the FX markets. In fact, USDJPY recovered initial losses and rose to an intraday high following the release.
Fourth quarter GDP growth in the US was revised higher to 0.4% from 0.1%. Economists were looking for a slightly stronger print, but personal consumption was revised lower.
Jobless claims also rose to 357K from an upwardly revised 341K. While this was the largest miss in jobless claims in four months, it is still a relatively low number that won't raise too many eyebrows inside the Fed. Over the past few weeks, claims have been abnormally low, and 350K is more consistent with the overall state of the labor market.
Pending home sales will be released today as well, but we don't expect any major surprises there. Given the weakness in new and existing home sales, pending home sales will most likely decline.
Inflationary Pressure Could Impact USDCAD
Meanwhile, north of the US border, the Canadian economy grew by 0.2% in the month of January. On an annualized basis, this translates into GDP growth of 1.0% versus 0.7% the previous month.
While the data was strong enough to help the Canadian dollar (CAD) hold onto its gains, a larger upside surprise was needed to increase the momentum of the downtrend in USDCAD. The 1.4% increase in industrial product prices and 2.2% increase in raw material prices, however, verify the increase in inflationary pressures last month.
For the Bank of Canada, slightly stronger GDP growth and hotter inflation pressures will leave their hawkish monetary policy stance intact.
By Kathy Lien of BK Asset Management