USD/CAD Forecast May 20-24 – Trade tensions send Canadian dollar lower

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USD/CAD posted slight gains last week. The upcoming week is light on data, but retail sales reports could have a significant impact on the movement of USD/CAD. Here is an outlook for the highlights of this week and an updated technical analysis for USD/CAD.
In Canada, CPI slowed to 0.4%, after two straight gains of 0.4%. Core CPI dropped to 0.0%, its lowest level in 4 months. There was positive news on the manufacturing front, as manufacturing sales jumped 2.1%, above the estimate of 1.5%. This marked the strongest gain since November 2017. As well, ADP nonfarm payrolls jumped in April, as the economy created 61.7 thousand jobs.
Trade tensions between the U.S. and China rocked global equity markets last week. The U.S. and China have exchanged tariffs on each other products, dampening hopes for a trade deal and weighing on risk appetite. Nervous investors have been dumping equities in favor of safe-haven assets, such as the U.S. dollar and the Japanese yen. The U.S. raised tariffs on $200 billion in Chinese goods, from 10% to 25%, and the response was not long in coming. The Chinese response was vigorous, as China retaliated with tariffs on $60 billion of U.S products. Although the U.S.and China are scheduled to continue trade talks, investors are wary after the latest tariff battle.

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

https://www.tradingview.com/x/Zz2lZSLz/

  1. Retail Sales Data: Wednesday, 12:30. As the primary gauge of consumer spending, retail sales is carefully monitored. Retail sales jumped 0.8% in February, after three successive declines. Core Retail Sales posted a strong gain of 0.6% in February, above the estimate of 0.2%. Will we see an improvement in the March numbers?
  2. Wholesale Sales: Thursday, 12:30. Wholesale sales slowed in February to 0.3%, but still beat the forecast of 0.1%.
  3. Corporate Profits: Thursday, 13:30. Canadian corporations showed a sharp drop in profits during Q1, falling 3.9%. The decline comes after gains in profits in three straight quarters. Data for Q2 is due now.

* All times are GMT

USD/CAD Technical Analysis

Technical lines from top to bottom:

1.3915 was an important resistance line back in February 2016.

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. 1.3445 (mentioned last week) remained relevant throughout the week. It starts the upcoming week as a weak support line.

1.3385 is next. Close by is 1.3350.

Lower, 1.3265 was the high point in mid-November. 1.3225 has held in support since early March.

1.3175 was a swing low in late November.

1.3125 is the final support level for now.

I remain bullish on USD/CAD

The escalation in trade tensions between the U.S. and China has dampened risk appetite. This has weighed on risk currencies as investors seek safe-haven alternatives, such as the U.S. dollar. This could mean headwinds for the Canadian dollar.

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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.