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Inflation Rate and Retail Sales are the highlight of this week. Here is an outlook on the main events coming up and an updated technical analysis for USD/CAD.

The Bank of Canada raises expectations for interest rates rises further on this year by raising the 2011 growth and inflation forecasts to 2.9% from 2.4%. Although it held the key overnight rate target at 1% and made no implicit announcement by claiming   a strong Canadian dollar could damage Canadian economy, putting extra downward pressure on inflation through lower-than-expected net exports and larger declines in import prices.

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

Canadian dollar chart April 18-22

  1. Foreign Securities Purchases: Monday, 13:30. Foreigners bought a net C$13.3 billion  of Canadian securities in January. This increased mainly due to purchases of federal  government bonds. Canada has ambitious plans to balance its budget following the global recession with robust expansion. The economy expanded at a 3.3% annual pace in the fourth quarter, the fastest among Group of Seven nations. A decrease of purchases to C$11.23 billion is predicted now.
  2. Inflation Rate: Tuesday, 12:00. Canadian CPI has been mild in recent months with a six-month annualized growth rate of 1.7 percent and a yearly rate of 2.3 percent. On a monthly basis, CPI grew by 0.3% while Core CPI added 0.2%. Despite this continuous growth in bank lending there is no upward pressure on prices. Core CPI is expected to gain 0.3% while CPI is expected to climb 0.7%.
  3. Leading Index  : Tuesday, 13:30. Leading indicator gained 0.8% in February following 0.4% in January. Analyst consensus stood on average on an increase of 0.7%. In manufacturing, orders for durable goods increased by 1.0 % after three drops. Energy sector rose by 2.7% and the housing index rose by 1.8%. A smaller increase of 0.5% is expected now.
  4. Wholesale Sales  : Tuesday, 13:30. Canadian wholesale sales increased for the sixth month in January, rising 1.5% to C$46.7 billion nearly doubling the forecast of 0.9% rise. This report empowers the claim of a real recovery in the first quarter, after the economy expanded at an annualized pace of 3.3 percent pace in the final three months of last year. A further increase of 2.2% is forecasted.
  5. Retail Sales: Thursday, 13:30. Unexpectedly weak sales volume was registered in January with a drop of 0.3% in Retail sales caused by lower sales at new car dealers. It was the second decline in a row below the 1.0% gain forecasted by Analysts. Core retail sales remained flat. This data could weigh on the GDP growth rate for the first quarter. Core Retail Sales are predicted to climb by 0.5% while the headline figure  is expected 0.6% gain.

*All times are GMT.

USD/CAD  Technical  Analysis

Dollar/CAD rose from the deep lows it reached last week, and marked a firm top at 0.9667, a new line that didn’t appear last week. It then continued trading in a narrow range.

Looking up, the aforementioned 0.9667 line provides immediate resistance after working convincingly just now, and also working as a bottom earlier in the year. It’s followed by  0.98, another support line from 2007, that proved to be a strong line in recent weeks.

Moving higher, we find 0.9930.  This is the 2010 low and it now works as strong resistance if the pair gets close to these levels.  The next minor resistance line is very close – 0.9977, another low from 2010.

We now reach the distinctive line of USD/CAD parity. This is also resistance, although after it was crossed many times, its significance is reduced.  The last line for now is 1.0060 is the highest level in the past months and is a minor line of resistance up above parity

Looking down, support is found at 0.9510. This was a minor line of support during the big move down at the end of 2007. USD/CAD got close to this line now. It’s followed by 0.9415, which also played a role back then.

Even lower, 0.92 is also of significance, followed by the all time low of 0.9056.

I remain bearish on USD/CAD.

The pair consolidated its drops in the past week, and may be ready for another move lower. The Canadian economy is doing quite well, and combined with the high prices of oil, there’s more room for USD/CAD to drop.

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