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Canadian Dollar Forecast, Minors

USD/CAD Outlook January 21-25

USD/CAD eventually made a move higher, riding on the strength of the US dollar. Retail sales and the rate decision are the highlight of this week. Here is an outlook on the major market-movers and an updated technical analysis for USD/CAD.

Foreign purchases of Canadian securities plunged to a six-month low of C$5.62 billion ($5.67 billion) in November amid unusually weak purchases of Canadian debt securities. However, Canadian purchases of foreign securities reached a 5-1/2 year high in November largely thanks to a record purchase of U.S. government bonds. Speaking of the US, the situation there is improving. Let’s start:

Updates: Wholesale Sales fell to 0.7%, but this was better than the estimate of 0.5%. USD/CAD continues to move higher, as the pair was trading at 0.9940. Core Retail Sales, a key consumer indicator, declined 0.3%. The estimate stood at a 0.1% gain. Retail Sales looked better, rising 0.2%. This beat the estimate of 0.0%. The Bank of Canada maintained it benchmark interest rate at 1.00%. The BOC took  a dovish view of  the economy, stating that it did not expect  the economy to return to full capacity until the  latter half of 2014. The loonie  fell after the news, as  USD/CAD  reached parity for the first time since mid-November 2012. USD/CAD was  trading at 1.0016.  

Core CPI will be released on Friday.

USD/CAD daily chart with support and resistance lines on it. Click to enlarge:USDCAD Technical Analysis January 21 25 2013

  1. Wholesale Sales: Monday, 13:30. Canadian wholesale activity increased 0.9% in October rebounding from the 1.5% plunge in the previous month, with six of seven  sub sectors reporting gains. Analysts expected wholesale trade to grow just  0.3% in the month. A rise of 0.4% is expected now.
  2. WEF Annual Meetings: Tue-Thu. The World Economic Forum (WEF) will be held in Davos, Switzerland incorporating international political leaders, business leaders and journalists from across the globe. The forum will discuss global, regional and industrial issues with regards to economics, health and the environment.  
  3. Retail sales: Tuesday, 13:30. Canadian consumers increased their spending by 0.7% to C$39.4 billion in October following three consecutive gains. Automobile parts, accessories and tire store sales rose by 6.2% reversing the -2.7% decline in September. Declines were registered at furniture and home furnishings stores -2.0%, on weaker sales of furniture. Electronics and appliance stores saw sales fall by 1.6%. Meanwhile Core sales also surprised with a 0.5 climb from 0.1% rise in September, again above predictions of 0.2% increase. Retail sales are expected to contract -0.2% while Core sales are expected to gain 0.1%.
  4. Rate decision: Wednesday, 13:30. Bank of Canada Governor Mark Carney, maintained the bank’s trend-setting overnight interest rate at 1% in order to stimulate domestic economy. Global uncertainty will probably force Carney to keep rates unchanged also in 2013 due to Canada’s dependence on global demand. No change in rates is expected now.
  5. Inflation data: Friday, 13:30. Canadian inflation remained weak in November, dropping 0.2% after a 0.2% rise in October, amid falling gasoline prices and sluggish economic growth while analysts forecasted a flat reading. Meanwhile core rate was unchanged from October lower than the 0.2% rise anticipated and following a 0.3% increase in October. There is little risk that inflation will cause worries for the central bank any time soon. Both CPI and Core CPI are expected to decline 0.2%.

* All times are GMT.

USD/CAD Technical Analysis

Dollar/CAD began the week trading at a limited range. It then made a leap, crossed the 0.9880 line (mentioned last week) and eventually peaked at the 0.9950 line before retreating. 0.9910 provides support.

Technical lines, from top to bottom:

1.02 was the trough of 2009 and remains important since then, working in both directions. Another round number, 1.01, was a trough back in July, and switched to resistance afterwards.

1.0066 was key support before parity. It’s strength during July 2012 was clearly seen and it gave a fight before surrendering. It has a stronger role after capping the pair during November 2012.

The very round number of USD/CAD parity is a clear line of course, and the battle was very clear to see at the beginning of August 2012. 0.9950 provided some support for the pair during November and worked as resistance earlier. Its stubborn behavior as resistance in December proved its strength. This line is close once again.

0.9910 remains the chart after serving as a bottom border for the pair in November 2012. It already managed to work as weak resistance in December 2012. 0.9880 showed that it is a clear separator in October 2012. It also had a role in the past. This line switches roles once again.

0.9817 was a stubborn peak in September and is now significant support. As seen in December 2012, this line worked as a cushion. It worked very nicely in January 2013. Lower, 0.9725 worked as strong support back at the fall of 2011 and showed its strength once again in October 2012.

0.9667, which was another strong cushion in June 2011 is the next line. The round number of 0.96 provided some support back in 2011 and is minor now.

Further below, 0.9406 is the post crisis low.

I am bearish on USD/CAD.

The improving situation in the US, together with all the potential that the Canadian dollar has to leap, support the Canadian dollar and weigh on the pair. It will be surprising to see a sustained break above parity.

USD/CAD is not the easiest pair to trade lately. Here are  5 most predictable pairs for Q1 2013.

 Further reading:

Anat Dror

Anat Dror

Anat Dror Senior Writer I conceptualize, design and create multi-lingual websites. Apart from the technical work, my projects usually consist of writing content for these sites in English, French and Hebrew. In the past, I have built, managed and marketed an e-learning center for language studies, including moderating a live community of students. I've also worked as a community organizer