The Greenback Continues to Trend Higher Following Strong Inflation Report

The dollar moved higher Loonie breaking out versus most major currencies. Treasury yields were lower but the Treasury yield interest rate curve flattened to the lowest levels since November 2020, signaling an oncoming recession. The Fed’s favorite gauge of inflation moved to the highest level in 20-years, while consumer spending dipped in December as the spread of the Omnicron variant dampened sentiment.

Technical Analysis

The USD/CAD surged on Friday and continued to break out above resistance. Support, which was former resistance, is seen near the 50-day moving average on near 1.2713. Resistance is seen near the January highs at 1.2813. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. 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 above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in positive territory with an upward sloping trajectory which points to a higher exchange rate.

Inflation Rises More than Expected

According to the Commerce Department, the personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, rose 0.5%, matching the gain in November. The core PCE price index accelerated 4.9% year-on-year in December, the most significant rise since September 1983. The core PCE price index increased 4.7% in the 12 months through November. Core PCE is the Fed’s favorite gauge of inflation expectations.