USD/CAD Forecast December 16-20 – Canadian Dollar Improves on Dovish Fed

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USD/CAD lost ground last week, as the Canadian dollar enjoyed its best week since early October.
Canada releases key consumer inflation and spending indicators in the upcoming week. Here is an outlook at the highlights and an updated technical analysis for USD/CAD.
In Canada, construction numbers were mixed. Housing starts were almost unchanged at 201 thousand, while Building Permits declined for a second straight month, with a reading of -1.5%.
In the U.S., the Federal Reserve maintained rate levels, but sounded dovish, as the dot plots showed that most FOMC members did not anticipate a rate hike before 2021. CPI gained 0.3% and Core CPI rose 0.2%, as both were within expectations. Retail sales dipped to 0.2%, shy of the estimate of 0.5%. Core retail sales slowed to 0.1%, missing the forecast of 0.4%. On Thursday, there were reports that the U.S. and China had reached a limited trade agreement, which could signal the beginning of the end of the nasty trade war which has dampened global growth.

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

  1. Foreign Securities Purchases: Monday, 13:30. Assets purchased by foreigners dipped to C$4.76 billion in September, but this beat the estimate of 4.22 billion. The forecast for October stands at 5.22 billion.
  2. Manufacturing Sales: Tuesday, 13:30. Manufacturing sales have been sputtering, with three declines in the past four months. The indicator is expected to rebound in October, with an estimate of +0.2%.
  3. Inflation: Wednesday, 13:30. CPI improved to 0.2% in October, after back-to-back declines. Will we see another gain in the November release?
  4. ADP Nonfarm Employment Change: Thursday, 13:30. This employment indicator has pointed to strong job creation in recent months, but faltered in October, with a weak reading of -22.6 thousand. Will we see an improvement in November?
  5. Retail Sales: Friday, 13:30. Retail sales reports were mixed in September. The headline release came in at -0.1% for a second straight month. Core retail sales was stronger, with a gain of 0.2% in September.

USD/CAD Technical Analysis

Technical lines from top to bottom:

We start with resistance at 1.3550.

1.3445 has remained intact since the first week of June. 1.3385 is next.

The round number of 1.3300 continues to be a resistance line.

1.3265 remains a relevant line. It has some breathing room in resistance.

1.3150 is an immediate support line.

1.3100 (mentioned last week) has held in support since the end of October, when USD/CAD started an extensive rally.

1.3048 is protecting the round number of 1.3000, which has psychological significance.

1.2916 was last tested in October 2018.

1.2830 is the final support level for now.

I am bearish on USD/CAD

The Canadian dollar posted gains for a third straight week and the momentum could continue. The U.S. and China are expected to sign a ‘Phase 1’, limited trade agreement, which is expected to terminate or suspend tariffs between the world’s two largest economies. The agreement will likely raise investor appetite, which could boost minor currencies like the Canadian dollar.

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About Author

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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