USD/CAD had its best week since mid-December, posting gains of 1.6%. This comes after the pair fell 3.7% in January. This week’s key event is Manufacturing Sales. Here is an outlook for the highlights of this week and an updated technical analysis for USD/CAD.
The week wrapped up with a sparkling job creation report. The economy created 66.8 thousand jobs in January, crushing the estimate of 6.5 thousand. The unemployment rate ticked higher, from 5.7% to 5.8%.
The Bank of Canada appears to have taken a page out of the Federal Reserve’s playbook, with analysts expecting the bank to ease monetary policy this year after aggressively raising rates in 2018. On Wednesday, BoC Deputy Governor Timothy Lane said that Canada’s fundamentals were strong and unemployment was at historically-low rates. However, Lane noted that the Canadian dollar was under pressure due to lower oil prices, a soft housing market and a decline in business investment due to uncertainty over U.S. trade policies.
USD/CAD daily chart with support and resistance lines on it. Click to enlarge:
- Manufacturing Sales: Thursday, 13:30. This event should be treated as a market-mover. The indicator has posted three declines in the past four months, including a sharp 1.4% drop in November. Will we see an improvement in the December release?
- Foreign Securities Purchases: Friday, 13:30. There was good news in November, as purchases were sharply higher, with a reading of C$9.45 billion. This easily beat the estimate of C$2.05 billion. Stronger demand for domestic securities translates is bullish for the Canadian dollar.
*All times are GMT
USD/CAD Technical Analysis
USD/CAD posted strong gains in mid-week trading, boosting the pair to two-week highs. The pair easily broke through resistance at 1.3265 (mentioned last week).
Technical lines from top to bottom:
We begin with resistance at 1.3757.
1.3662 marked a high point at the start of January, when the Canadian dollar rallied in the first week of the year.
1.3560 capped USD/CAD in May 2017. Next, 1.3445 was the peak in early December.
1.3385 was the high point seen in May. 1.3350 was a stepping stone on the way and on the way down around the same time.
Lower, 1.3265 was the high point in mid-November. 1.3225 was tested in support, as the pair posted strong losses before recovering late in the week.
1.3175 was a swing low in late November. It is followed by 1.3125 which was also a low point, earlier in the month.
1.2970 is just below the round level of 1.3000 level. This line was a trough in late October.
I remain bullish on USD/CAD
With the Canadian economy showing signs of a slowdown, the mood of consumers remains fragile. Lower oil prices and the global trade war have lowered demand for Canadian exports and weighed on inflation and wage levels. Consumer confidence is a strong barometer of the economy’s health, and if weaker consumer sentiment translates into decreased consumer spending, the economy could falter and drag down the Canadian dollar.
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