The CAD will certainly remain driven by sentiment flows and risk appetite/risk aversion but its important to know which way the fundamentals swing next for the pair. Do we focus on the BOC statement which was bullish for the CAD or do we look at inflation data which would argue for a neutral to bearish outlook on the CAD. In the upcoming NY session we get the latest reading on retail sales for Canada for the February period. This could be used as a clue as to where the the Canadian dollar heads next, and could set up the conditions for a down move in the EUR/CAD pair.

The Canadian dollar got a huge boost from the Bank of Canada interest-rate statement which was more hawkish than expected. We can see that inflation has been running hotter than the BOC had anticipated, and in Friday’s session we get our latest reading on Canadian prices. The expectation is for a cooling in annual prices, which may undermine the CAD. Since the USD/CAD trades in the middle of its recent range it sets us up with a trade idea to target either support or resistance of the range depending on how the inflation data comes in.

The Bank of Canada released the fairly hawkish statement following its interest-rate decision saying that economic growth – domestically – is stronger than previously expected and that some of the downside risks from the global economy have abated. The market had expected a more up-beat tone and by the central bank following strong employment and housing data of late, but the language was more hawkish than anticipated and helped give a strong boost to the Canadian dollar against key rivals.

The Canadian dollar is been one of the better performers of late as it has managed to piggyback both on the positive momentum in the US economy but also the strengthening USD. We can still see the Canadian dollar push its fundamental advantage against some of the current weaker currencies like the euro and Australian dollar but it would need help from a fresh catalyst such as its March employment data which comes out in Thursday’s trading session.

In order to play the strength of the US economy but still catch the positive benefits of risk appetite flows we look to use the Canadian Dollar as a proxy. With the EUR showing particular weakness to begin the week, we structure a trade idea by looking at the EUR/CAD pair and see if the recent gains in the EUR/CAD can be pared in the following week(s). We would need some fundamentals to go our way including a dovish ECB, and better employment data from Canada and the US.

The negative print on the CAN retail sales today undermines the fundamental case for the Canadian Dollar. We now shift our attention for the USD/CAD to Friday consumer inflation data (while monitoring) the more global sentiment themes. If CPI is cooler than forecasts the BOC – if its concerned about the domestic economy – can turn more dovish, which would hurt the CAD.If CPI comes in hotter than expected, it could give the CAD some support from a fundamental factor.