Inflation Rate and Retail Sales are the major events in the coming week. Here is an outlook on the events ahead and an updated technical analysis for USD/CAD.
USD/CAD daily chart with support and resistance lines marked. Click to enlarge:
Last week encouraging economic data raised hopes that recovery is back on track, despite an anemic third quarter that has kept central bank interest rates on hold. Wholesale trade in September climbed 0.4 percent, twice the rate forecast on a surge in auto and machinery sales. Foreign investors were drawn to Canadian markets buying C$12.25 billion worth of securities with and provincial bonds. In October, the composite leading indicator beat expectations with a 0.2 percent gain indicating stronger demand for exports and September’s retail sales also look promising. Will this the beginning of a real recovery? Let’s start:
- Inflation rate: Tuesday, 13:00. The consumer price index rose 0.2% in September following 0.1% dip in August rising 1.9% on yearly bases, from 1.7% in August. Core rate excluding volatile items such as gasoline grew slower to 0.2% from 0.1%. Relative to a year earlier, the biggest gains were recorded in transportation and shelter costs. Bank of Canada Governor Mark Carney said Core rates will remain below 2% until the fourth quarter of 2012 indicating a steady market. CPI is expected to remain 0.2% while Core CPI expected a lower rise of 0.1%.
- Retail Sales: Tuesday, 14:30. Canadian retail sales advanced 0.5% the fastest pace in six months in August, due to products such as gasoline food and furniture. While Core retail sales excluding car and parts dealers rose 0.4% to C$28.1 billion, compared with the 0.5 percent increase expected by economists. Holiday retail sales bring great expectations for Canada’s economy with retail sales growth forecasts of 9.4% over last year, retailers are ready to recruit more workers to tackle the rush. This is also a great opportunity to find a long term job for dedicated workers. Core Retail sales are expected to gain another 0.4% while Retail Sales are predicted to further increase to 0.8%.
- Corporate Profits: Wednesday, 14:30. Canada’s corporate profits declined this year by 18.4% and by 1.8% compared to the previous quarter of 4.8% gain. Only 77 of 208 companies who have reported so far have posted positive earnings surprises. A similar number is expected now.
- All times are GMT.
USD/CAD Technical Analysis
The Canadian dollar retreated at the beginning of the week, with USD/CAD rising above the 1.01 line (mentioned last week). It then struggled with the 1.02 line before closing at 1.0164, a rise of 50 pips in the week.
Above current levels, 1.02 is a weak line of resistance. It was the 2009 low. Higher, the 1.0380 line is a very strong resistance line after stopping USD/CAD from rising several times in recent months, and is still far.
Above, 1.05 capped the pair two times during the summer and is the next significant resistance line. Above, the strong 1.0680 worked as resistance in July and in August, for more than one day in each attempt to break higher.
Even higher, the next levels are still far – 1.0750 was a swing high during May and also the limit of a long-term range in 2009. Even higher on the upside, 1.0850, which was also a swing high in May.
Looking down, 1.01 was a pivotal line in the past week and provided an immediate cushion to any fall. USD/CAD is naturally the next strong support line.
Below parity, the year-to-date low of 0.9930 is the next support line, followed by 0.98 and 0.97, which were support lines back in 2008.
I am bearish on USD/CAD.
A stabilization in the Irish crisis could provide enough risk appetite for the Canadian dollar to rise as the situation in Canada is rather good (as seen in jobs). Oil prices could also recover and provide help for the loonie.
Further reading:
- For a broad view of all the week’s major events worldwide, read the USD outlook.
- For EUR/USD, check out the Euro/Dollar forecast.
- For the Japanese yen, read the USD/JPY forecast.
- For GBP/USD (cable), look into the British Pound forecast.
- For the Australian dollar (Aussie), check out the AUD to USD forecast.
- For the New Zealand dollar (kiwi), read the NZD forecast.
- For USD/CAD (loonie), check out the Canadian dollar.
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