USD/CAD Forecast Jan. 20-24 – After Quiet Week, Investors Await Consumer Releases, BoC Decision

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USD/CAD showed limited movement last week as the pair hovered close to the 1.3050 line. The upcoming week is busy, with inflation, retail sales, and the Bank of Canada rate decision. Here is an outlook at the highlights and an updated technical analysis for USD/CAD.
Canadian numbers were mixed last week, The ADP nonfarm payrolls report improved to 46.2 thousand, its highest level in four months. However, Foreign Securities Purchases declined by C$1.75 billion in October, well off the estimate of C$12.32 billion. This was the first decline since July.
It was a busy week for U.S. indicators after the recent holiday period. Retail sales, the primary gauge of consumer spending, were positive in December. The headline reading improved to 0.3%, up from 0.2% a month earlier. Core retail sales impressed with a gain of 0.7%, above the estimate of 0.5%. The strong numbers were a result of a late-holiday shopping spree by consumers. Consumer inflation has been losing ground and remains below the Federal Reserve target of 2.0 percent. The downturn continued in December. CPI slowed to 0.2%, compared to 0.3% a month earlier. Core CPI dipped to 0.1%, down from 0.2%.

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

  1. Manufacturing Sales: Monday, 13:30. The manufacturing sector remains weak and manufacturing sales has managed only one gain in the past five readings. In October, the indicator declined by 0.7%, missing the forecast of zero. Will we see a rebound in the November release?
  2. Inflation: Monday, 13:30. Consumer inflation declined by 0.1% in November, its third decline in the past four months. Core CPI, which excludes the most volatile items which make up CPI, fell by 0.2% in November. We will now receive the December data.
  3. Wholesale Sales: Wednesday, 13:30. Sales at the wholesale level provide some guidance for consumer spending, a key growth engine of the economy. The indicator fell by 1.1% in November, after a gain of 1.0% a month earlier. The November reading was well off the estimate of -0.4%.
  4. BoC Rate Decision: Wednesday, 15:00. The Bank of Canada is expected to maintain the benchmark rate at 1.75%, where it has been pegged since October 2018. The tone of the rate statement could have a significant effect on the movement of USD/CAD.
  5. Retail Sales: Friday, 13:30. Retail Sales have sputtered, with three successive declines. In October, the indicator declined by 1.2%. This was well off the estimate of 0.5%, and marked the sharpest decline since April 2018.

USD/CAD Technical Analysis

Technical lines from top to bottom:

We start with resistance at 1.3445, which has remained intact since June 2019. 1.3385 is next.

The round number of 1.3300 has served in a resistance role since early December. 1.3265 follows.

1.3150 switched to a resistance role in the last week of December.

1.3100 (mentioned last week) remains an immediate resistance line,

1.3048 was relevant throughout the week. Currently, it is a weak resistance line.

1.2916 has provided support since October 2018. 1.2830 is next.

1.2730 has held in support since May 2018.

1.2630 is the final support level for now.

I remain neutral on USD/CAD

After the recent flare-up between the U.S. and Iran, the situation has de-escalated and investor risk appetite has recovered. Canadian consumer data and the BoC rate statement could play a major role in the Canadian dollar’s fortunes this week.

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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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