Canadian Dollar – February 21-25

Retail Sales is the highlight of this week. Here is an outlook on the important events ahead and an updated technical analysis for USD/CAD

Canadian manufacturing sales gained 0.4% in December considerably lower than the 2.1% rise expected. This came as a big surprise in light of an encouraging increase in exports jumping 9.7 % in December to C$37.78 billion from November, enabling the trade balance to move into surplus after nine months of deficit. In Addition unfilled and new orders fell, signaling weakness in future sales, despite a 0.3 % rise in the composite leading index for January. Will these mixed signals lead to an unequivocal recovery?

USD/CAD daily chart with support and resistance lines marked. Click to enlarge:

Retail Sales: Tuesday, 13:30. Retail sales surged by 1.3% in November, a sixth consecutive monthly increase where sales rose in 8 of 11 retail industries following a flat reading in the month before. The gains were widely distributed regionally indicating real growth in the Canadian market. Core Retail Sales excluding motor vehicles and parts were up 1.0% following 0.9% rise in the prior month. Strong consumer spending and government stimulus measures have been the major drivers of Canada’s recovery from recession while exports have sagged due to the weak U.S. economy. Retail Sales are expected to be flat this time while Core Retail Sales are predicted to gain 0.7%.
Corporate Profits: Wednesday, 13:30. Canadian business profits decreased in the third quarter by 0.3% between July and September to C$61.5 billion ($60.2 billion), the second consecutive decline. The Bank of Canada predicts that exports and business investment will lead economic growth through 2012 after companies cut spending during a recession that ended last year. A smaller drop is expected now.

*All times are GMT.

USD/CAD Technical Analysis

The loonie drifted in a narrow range throughout most of the week. Towards the end, USD/CAD dipped below the 0.9840 line (mentioned last week), but didn’t breach 0.98.

Looking up, USD/CAD finds resistance at 0.9930. It was the bottom in 2010 and a pivotal line recently. Above this line, USD/CAD parity is the obvious line of resistance, working in both directions in the past few months. Despite being overridden, it still is of importance.

Further above, 1.0060 is the highest level in the past months and is another resistance line – a minor one. It’s followed by 1.0140, which served as resistance in December and also as support in the past.

Higher, 1.0280 also served in both directions, taking the role of resistance in the last encounter. 1.0380 was another resistance line, that capped a break more than once, and is strong resistance. Further above, the next line is 1.05.

Looking down, 0.9840, despite the dip below it right now, serves as immediate and strong support – a double bottom that prevented further falls. It’s followed by0.98, which was a support line back in 2008 is very close by.

Further below we find 0.97, which had the same role at 2008, is another important support line. There aren’t many lines until the all-time low of 0.9056 back in November 2007.

I remain bearish on USD/CAD.

With improvements in the Canadian economy and rising commodity prices, the loonie has reasons to rise.