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The Loonie rallies after higher than expected CPI numbers

CAD - Canadian Dollar

The Loonie rallies this morning (the USD/CAD pair falls around 0.2 percent) after the consumer price index in May came in at 2.4 percent, up from a 2 percent increase in April. According to Statistics Canada, the CPI increased amid a series of broad-based gains, including higher prices for food and durable goods, while consumers paid 3.7 percent less for gasoline compared with May 2018. The core CPI came in at 1.8 percent as expected, and monthly, the CPI increased 0.4 percent, higher than the expected number of 0.1 percent. Also, with the price of crude oil falling around 1 percent this morning, it would be interesting to see how the Loonie gains hold through today's trading session until the Fed announcement later. Crude oil prices had surged yesterday, showing the most significant increase in five months, as OPEC is already close to an agreement before going into their next meeting in Vienna during the first week of July, concluding a dispute on when to discuss an output-cut extension.

Technically speaking, the USD/CAD pair is failing to hold its long term uptrend. It is a significant development given that the U.S. dollar index also looks as though it is topping out in the long term. Of course, nothing is guaranteed in the FX markets, but in today's trading session, the USD/CAD pair might find resistance at 1.3364 and 1.3375 and supports at 1.3344 and 1.3304. However, today is a Fed day in the U.S.; therefore we might have more volatility after 2:00 pm EST, so, another critical resistance level is 1.3409, and key support levels are 1.3279 and 1.3238.

Key Movers

The Greenback rallied around 0.1 percent yesterday along with the North American equity market, as President Donald Trump showed hopes for a trade trace. Trump said he would have an "extended meeting" with Chinese counterpart Xi Jinping at the G-20 summit next week after the two had a "very good" phone call.

Most market participants don't expect a rate move today by the Fed, but nobody knows what surprises we might have after 2:00 pm EST. If the Fed does not surprise markets with a rate cut, market participants will eagerly look to see how the "dot plot" forecasts are updated. Every quarter, the Fed shows how the policymakers' expectations are changing for interest rates over the next few years. The last update was in March and, at that time, 11 of the 17 FOMC officials expected rates to remain on hold for the rest of the year, 4 expected a 25-basis point increase, and 2 expected interest rates to rise. Market participants are expecting dovishness from the FOMC, and looking at the FX market movements this morning, it seems like the federal funds futures have priced in a modest probability of a cut for today's meeting, but they are placing a more substantial likelihood on the first cut coming at the next FOMC on July 31st.

BBG report-The White House noted the legality to dismiss Fed Jerome Powell in February, soon after President Donald Trump talked about firing him. When Trump was asked on Tuesday whether he still wants to fire Powell, Trump told reporters: "Well, let's see what he does." Clearly Trump is waiting for Powell and the Fed to start cutting rates as soon as possible to pump the economy, avoid likely recession and win its second period as president of the U.S. Legal experts say it isn't clear whether Mr. Trump has the authority to remove Mr. Powell as chairman before the Fed chief's term expires in 2022.

Expected Ranges

USD/CAD: 1.3303 - 1.3384 ▼

EUR/CAD: 1.4927 - 1.5047 ▲

GBP/CAD: 1.6780 - 1.6912 ▲

AUD/CAD: 0.9161 - 0.9200 ▼

NZD/CAD: 0.8690 - 0.8746 ▼