The Canadian dollar continued advancing against the USD as more positive figures came out of Canada. Employment data, Trade balance and Ivey PMI are the highlights of this week. Here is an outlook on the major market-movers and an updated technical analysis for USD/CAD.
The Canadian economy gained momentum last week, with a better than expected GDP reading for the first month of 2013. The economy grew by 0.2%, following a decline of the same amount in December. Manufacturing, mining, oil and gas industries showed expansion. Inflation data also rose above predictions with headline CPI jumping 1.2% way above the 0.6% gain expected, after posting a minor rise of 0..1% in January, and core CPI rose 0.8% from 0.1% in January. Will the flow of good news continue this week?
Updates: BOC Deputy Governor John Murray addressed an economic conference in Washington. There are no economic releases until Friday. USD/CAD has edged lower, as the pair was trading at 1.0136.
- John Murray speaks: Tuesday, 16:20. BOC Deputy Governor John Murray is scheduled to speak in Washington DC. His words can cause volatility in the market.
- Employment data: Friday, 12:30. The Canadian economy created 51,000 new jobs in February, rebounded strongly following the 21,900 dip in January, much stronger than the 8,000 job addition forecasted by analysts. The gains were broad-based, spread between full- and part-time work. Canada gained almost 1 million jobs since the end of the recession in July 2009, indicating growth. Following this strong reading, unemployment rate remained at 7.0%, despite an increase of 60,000 new job seekers. A gain of 7,600 jobs is expected with the same unemployment rate of 7.0%.
- Trade Balance: Friday, 12:30. Canada’s trade deficit narrowed in January to 237 million Canadian dollars ($229.8 million), following a previous deficit of C$332 million reported in December. Analysts expected deficit to reach C$600 million. This figure indicates a positive trend for the Canadian economy. A surplus of C$200 million is expected this time.
- Ivey PMI: Friday, 14:00. Purchasing activity in Canada weakened unexpectedly in February for the second straight month, with a reading of 51.1 from 58.9 in January. Analysts expected an adjusted reading of 56.2. Despite this decline, purchasing activity is still above the 50 point line, indicating expansion. A further improvement to 52.3 is expected.
* All times are GMT.
USD/CAD Technical Analysis
Dollar/CAD started off the trading week with another struggle around the 1.02 line (mentioned last week). The pair settled below the line and found a bottom at 1.0140, which joins the chart.
Technical lines, from top to bottom:
1.0523 was a peak back in November 2011 and is minor resistance. 1.0446 was the peak that the pair recorded in June 2012 and is a key line on the upside.
1.0340 was the peak during March 2013 and its position strengthens at the moment. Consequent rises failed to reach this line, and this could be a bearish sign. The round number of 1.03 was resistance at the beginning of the year and now returns to this role. It worked perfectly well during June – over and over again, until finally being run through.
1.0250 was a peak before the pair moved below parity a long time ago, and worked as support quite well in March 2013. It is weakening now. 1.02 was the trough of 2009 and remains important since then, working in both directions.
1.0140 served as significant support in March 2013 and is a key line on the downside now. 1.01, was a trough back in July, and switched to resistance afterwards. The line proved its strength several times in 2013.
1.0066 was key support before parity. It’s strength during July 2012 was clearly seen and it gave a fight before surrendering. It has a stronger role after capping the pair during November 2012, but has begun weakening. The very round number of USD/CAD parity is a clear line of course, and the battle was very clear to see at the beginning of August 2012 and also in 2013. It is a clear separator.
0.9950 provided some support for the pair during November and worked as resistance earlier. 0.9910 remains the chart after serving as a bottom border for the pair in November 2012. It already managed to work as weak resistance in December 2012.
0.9880 showed that it is a clear separator in October 2012. It also had a role in the past. This line switches roles once again.
I turn from neutral to bearish on USD/CAD.
After the stronger GDP for the first quarter and especially the leap in prices, the dovish tone of the BOC could harden. In addition, oil prices remain high and the ongoing US recovery support a stronger Canadian economy. Without an big disappointment in the employment data, a challenge on parity is close.
- For a broad view of all the week’s major events worldwide, read the USD outlook.
- For EUR/USD, check out the Euro to Dollar forecast.
- For the Japanese yen, read the USD/JPY forecast.
- For GBP/USD (cable), look into the British Pound forecast.
- For the Australian dollar (Aussie), check out the AUD to USD forecast.
- USD/CAD (loonie), check out the Canadian dollar