Daily Report: Dollar Soft Despite Pullback in Crude Oil and Gold, USD/CAD at 3 Year Low

Dollar remains soft against other major currencies even though crude oil and gold are both lower on profit taking. Crude oil is back below 100 level after IEA said that production cut in Libya may be lower than feared. Also, Saudi Arabia, the US and the IEA assured that they would release emergency oil stockpiles when needed. Nevertheless, rebound in global equities take turn to pressure the greenback and sends USD/CAD to new three year low. EUR/USD is still heading towards 1.3860 key near term resistance while USD/CHF stays near to record low.

Euro remains strong ahead of next week's ECB meeting on speculation that ECB will toughen its language on inflation and signals exit from stimulus later in the year. Indeed, money markets are now pricing in that ECB will fully normalize liquidity by end of first half and that would push Eonia rate up from current 0.66% to above 1%, just slightly above ECB's main finance rate of 1%, back to normal condition.

Kiwi recovers mildly after S&P assured that the country's credit ratings are not "immediately affected" by this week's deadly earthquake in Christchurch. The agency said that it's early to "assess the overall implications of the considerable disruption to the Canterbury region and the broader New Zealand economy" and "financial system remains operational and will support an inevitable period of increased activity associated with the extensive reconstruction and repair work." Moody's also said earlier this week that it saw no immediate impact on the nation’s credit rating following the earthquake.

On the data front, Japan national CPI climbed more than expected to -0.2% yoy in February but Tokyo CPI dropped to -0.4% yoy. UK Gfk consumer confidence improved to -28 in February. Eurozone M3 and UK Q4 GDP revision will be featured in EUropean session together with Swiss KOF leading indicator. From US, main focus will be on Q4 GDP revision.

Dollar index drops further to as low as 76.96 so far and intraday remains on the downside for the moment. Fall from 81.31 is likely resuming and a break of 76.88 support will target 61.8% projection of 81.31 to 76.88 from 78.87 at 76.13 first and then 75.63 key support. On the upside, though, above 77.53 minor resistance will argue that fall from 78.87 might be over and consolidation from 76.88 is still in progress with another rising leg before resuming fall from 81.31. 

USD/CAD Daily Outlook

Daily Pivots: (S1) 0.9794; (P) 0.9847; (R1) 0.9879;

USD/CAD drops to as low as 0.9810 so far today, breaking 0.9815 support to resume recent decline. Further fall should be seen towards 61.8% projection of 1.0671 to 0.9979 from 1.0207 at 0.9779. However, note that USD/CAD has been clearly losing downside momentum recently, with bullish convergence condition in 4 hours and daily MACD. Strong support could be seen between 0.9709 and 0.9779 to contain downside initially and bring rebound. But after all, break of 0.9957 is needed to confirm bottoming. Otherwise, outlook will remain bearish.

In the bigger picture, whole medium term fall from 1.0363 (2009 high) is still in progress and such down trend should continue to 0.9709 support first and possibly further towards 2007 low of 0.9056. Nevertheless, fall from 1.3063 is still looking corrective and hence, we'd expect strong support between 0.9056/9709 to contain downside and bring another medium term rise. Though, break of 1.0851 resistance is needed to indicate medium term reversal. Otherwise, outlook will remain bearish.