USD/CAD Forecast July 15-19 – Canadian dollar poised to break through 1.30

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USD/CAD continues to have a quiet July, and showed slight losses last week. The pair dropped close to 1.3018, its lowest level since mid-October. Investors will be keeping a close eye on Canadian inflation and retail sales reports. Here is an outlook for the highlights and an updated technical analysis for USD/CAD.
There were no surprises from the Bank of Canada, which maintained the benchmark rate at 1.75%. The bank’s rate statement was neutral in tone, but the BoC’s growth forecast for 2020 was revised downwards, from 2.1% to 1.9%. Construction data was mixed, as building permits plunged 13% in May, after a gain of 14.7% a month earlier. Housing starts sparkled, climbing to 246 thousand. This marked the strongest gain since November 2017.
Federal Reserve Chair Jerome Powell appeared before congressional and senate committees last week, and his dovish message sent the U.S .dollar down and equity markets higher. Powell said the Fed was prepared to “act as appropriate” and noted his concern over low inflation and weak global conditions. Powell’s message has raised expectations of a rate cut later in July, as did the Federal Reserve minutes, which were dovish. The CME Group has priced in a rate cut at 77%. On the inflation front, June data was mixed. The headline reading remained unchanged at 0.1%. Core CPI improved to 0.3%, its strongest gain since January 2018.

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

  1. Foreign Securities Purchases: Tuesday, 12:30. The indicator provides insights into the flows of funds in and out of the economy. The deficit ballooned to C$12.8 billion April. We will now receive data for May.
  2. Inflation: Wednesday, 12:30. Headline Consumer Price Index (CPI) remained steady at 0.4% in May.     Core CPI, which removes the most volatile items in CPI, also posted a gain of 0.4%. However, other measures of Core CPI, the Trimmed, Media, and Common, were much stronger, with readings near 2.0%. We will now get data for June.
  3. Manufacturing Sales: Wednesday, 12:30. Sales at the manufacturing level are an important gauge of the health of manufacturing. The May release was a disappointment, with a decline of 0.6%. This was much lower than the estimate of a 0.6% gain.
  4. ADP Nonfarm Employment Change: Thursday, 12:30. After a positive streak of four straight gains, the ADP indicator found that the economy shed 16.0 thousand jobs in May. Will we see a rebound in the June release?
  5. Retail Sales Data: Friday, 12:30. The headline and core releases have both shown sharp swings in recent months. Retail sales slowed to only 0.1% in April, down from 1.1% a month earlier. Core retail sales also fell to 0.1% in April, short of the estimate of 0.6%. Will we see stronger numbers in May?

* All times are GMT

USD/CAD Technical Analysis

Technical lines from top to bottom:

We start with resistance at 1.3445. 1.3385 is next.

1.3350 has held in resistance since mid-June. This is followed by 1.3265.

1.3175 was a swing low in late November.

1.3125 was a low point earlier in November

The pair broke through support at 1.3048 (mentioned last week) late in the week. 1.2916 is next.

1.2831 has held in support since early October. 1.2729 follows.

1.2654 is the final support level for now.

I am neutral on USD/CAD

The Fed appears poised to lower rates later in July. Although such a move has been priced in, the greenback could still lose ground after a rate cut. At the same time, the U.S economy remains in good shape and the Canadian dollar is vulnerable to trade tensions, such as the U.S-China trade war.

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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.