The Dollar Tumbled Following Powell’s Senate Testimony

The dollar tumbled against the Loonie as the U.S. currencies experienced broad weakness. Strong demand for U.S. Treasury yields was evident following the robust Treasury auction on Tuesday. The stronger than expected Canadian jobs report pushed the yield differential in favor of the Canadian dollar. Fed Chair Jerome Powell testified in front of the Senate Banking committee en route to his nomination for a second term as Fed Chair. According to the Federal Reserve Bank of New York, Consumers expect higher inflation. On Wednesday, the Labor Department will release its Consumer Price Index.

Technical Analysis

The USD/CAD moved lower on Tuesday. Support is seen near the 200-day moving average at 1.25. Resistance seen near the 50-day moving average at 1.2690. The 10-day moving average is poised to cross 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 6, 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.

 Consumers Expect Higher Inflation

On Wednesday, the Labor Department will release the Consumer Price Index. Expectations are for a 7% year-over-year increase on the headline number and a 4% increase on the core. The December 2021 Survey of Consumer Expectations was conducted by the Center for Microeconomic Data at the Federal Reserve Bank of New York. The results show that consumers expected inflation to average 6.0% over the next 12 months and 4.0% over the next three years.