USD/CAD moved higher last week, after posting gains late in the week. The key events in the upcoming week are U.S. and Canadian GDP. Here is an outlook for the highlights of this week and an updated technical analysis for USD/CAD.
The Federal Reserve has been in dovish mode since the start of the year, but the pessimistic message from the Wednesday policy meeting soured investors. The Fed’s rate outlook indicated that a majority of policymakers expected rates to stay on hold until 2020. This was in sharp contrast to the previous quarter’s forecast, in which the FOMC projected two hikes in 2019.
The rate statement was blunt, stating that economic activity “has slowed”. Policymakers singled out slower growth in household spending and business investment and noted that inflation has decreased due to lower energy prices. The Fed also announced that it would stop reducing its $4 trillion balance sheet by $50 billion a month. This move is a loosening of policy and is intended to stimulate the economy. The new Fed forecast projects GDP growth of 2.1%, down from 2.3% in December.
In Canada, retail sales disappointed, with a decline of 0.3% in January. This missed the estimate of 0.4% and marked a third straight decline. CPI impressed in February with a strong gain of 0.7%, edging above the forecast of 0.6%.
USD/CAD daily chart with support and resistance lines on it. Click to enlarge:
- Trade Balance: Wednesday, 12:30. Canada’s trade deficit ballooned to C$4.6 billion in January, much higher than the estimate of $2.4 billion. This is a reflection of the drop in exports due to the trade war between the U.S. and China. The estimate for February is a deficit of C$2.6 billion.
- GDP: Friday, 12:30. Canada releases this event on a monthly basis. The economy has contracted by 0.1% for two successive months, and another decline could push the Canadian currency lower.
- RMPI: Friday, 12:30. This important inflation indicator has posted gains of 3.8% for the past two months, missing the forecast each time.
*All times are GMT
USD/CAD Technical Analysis
Technical lines from top to bottom:
1.3757 has held in resistance since May 2017.
1.3660 was the high point for USD/CAD in December.
1.3547 capped USD/CAD in June 2017. Next, 1.3445 was the peak in early December.
1.3350 (mentioned last week) remains relevant and is under pressure in support. XX
Lower, 1.3265 was the high point in mid-November. 1.3225 has held in resistance since early March.
1.3175 was a swing low in late November.
1.3125 was a low point earlier that month.
1.3048 has provided support since early November.
I am neutral on USD/CAD
The Fed will almost certainly hold interest rates at this week’s meeting. Policymakers have been sending dovish messages to the markets, and a cautious rate statement could sour investors on the greenback. At the same time, the Brexit crisis and slow progress in the U.S-China trade talks are weighing on risk sentiment, which could hurt the Canadian dollar.
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