USD/CAD Forecast Oct. 14-18 – Canadian Dollar Jumps on Strong Job Data

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A late-week surge boosted the Canadian dollar, as USD/CAD slipped close to 1.0% last week. The pair ended the week just below 1.32, its lowest level since September 12. Here is an outlook at the highlights and an updated technical analysis for USD/CAD.
It was a strong week for Canadian releases, which helped boost the Canadian dollar. Building Permits posted a strong gain of 6.1% in August, marking back-to-back gains. The week ended with unexpectedly strong employment data. The economy created 53.7 thousand jobs in September, crushing the estimate of 11.2 thousand. This follows a spectacular gain of 81.1 thousand jobs in August. The unemployment rate dipped to 5.5% in September, down from 5.7% a month earlier.
The Federal Reserve released the minutes of its September meeting, at which the Fed trimmed rates by a 1/4%. The minutes were dovish, as members said that the risks to U.S. growth “were tilted to the downside.” Policymakers noted issues that are nagging the U.S. economy – weak global growth, the toll of the U.S-China trade war and low inflation. The Fed appears ready to cut rates again – according to the CME Group, the likelihood of a 1/4 point rate cut in October stands at 75%. On Thursday, U.S. consumer inflation reports missed their estimates. The headline reading slipped to 0.0%, while Core CPI slowed to 0.1%. Inflation levels remain subdued, well below the Federal Reserve’s target of 2.0%.

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

  1. Inflation Data: Wednesday, 12:30. Canada releases a host of inflation indicators, led by CPI. The index has been pointing to weak inflation levels, with two declines in the past three months. Another weak reading is expected in September, with an estimate of -0.3%.
  2. Manufacturing Sales: Thursday, 12:30. The manufacturing sector has struggled, and manufacturing sales has recorded back-to-back declines. The July release came in at -1.3%. Will we see an improvement in the September release?
  3. ADP Nonfarm Employment Change: Thursday, 12:30. The ADP indicator continues to point to solid employment data. In August, the economy created 49.3 thousand jobs. We will now receive the data for September.

USD/CAD Technical Analysis

Technical lines from top to bottom:

We start with resistance at 1.3565.

1.3445 has remained intact as resistance since the first week of June. This is followed by 1.3385.

1.3350 has held since early September.

1.3265 switched to a resistance role late in the week after sharp losses by USD/CAD last week.

1.3175 is an immediate support level.

1.3125 (mentioned last week) has provided support since the end of July.

1.3048 is protecting the round number of 1.3000, which has psychological significance.

1.2916 has held firm since October.

1.2830 is the final support line for now.

I am bearish on USD/CAD

U.S. PMIs and inflation indicators are pointing to a slowdown in the U.S economy, and this could bode poorly for the Canadian dollar. Analysts like to say, “when the U.S. sneezes, Canada catches a cold”, a reference to the fact that the Canadian economy is heavily dependent on its southern neighbor. Oil prices have also slipped in recent weeks, which could weigh on Canada’s energy sector.

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About Author

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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