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The Canadian dollar retreated against the greenback, but USD/CAD eventually closed under parity. A busy week awaits loonie traders, with the rate decision and inflation data setting the tone. Will the pair pick a direction? Here’s an  outlook  for the Canadian events and an updated technical analysis for the USD/CAD.

Last week international trade surplus plunged from $1.9 billion in January to $292 million in February. The more worrying news came from the US, that saw jobless claims jump out of range. Canada is highly dependent on US demand. Let’s see what is in store for us this week.

Updates: After climbing above parity last week, USD/CAD is  trading just below this important level, at 0.9984.  The markets are waiting for the release of Foreign Securities Purchases later today. The indicator plummmeted in March, posting a dismal reading of -4.19B. This was the worst reading in over three years. The forecast calls for a much-improved reading, with a prediction of 4.23B. Foreign Securities Purchases sparkled, coming in at 12.50B, a three-month high. The markets were caught by surprise, having predicted a much more modest reading of 4.23B. The Canadian dollar is marginally stronger, as USD/CAD is trading at 0.9964. The  Bank of Canada  left a key interest rate unchanged at 1%, as the markets had predicted. The Bank of Canada will follow up with its quarterly press release later on Wednesday. Investors and analysts will be looking for clues to monetary policy at this event. The Canadian dollar is up, with the USD/CAD trading just above the 0.99 level, at 0.9902. The loonie has reacted favorably to the latest interest rate developments, as USD/CAD has slid below the 0.99 level, trading at 0.9891.

USD/CAD  daily chart with support and resistance lines on it. Click to enlarge:USD/CAD Chart April 16 20 2012

  1. Foreign Securities Purchases: Monday, 12:30. Foreign investors narrowed their holdings of Canadian securities in January by C$4.2 billion following C$8.2 billion in December stopping six-month of massive purchases. The major decline occurred in short-term federal treasury bills. A rise to C$7.23 billion is expected now.
  2. Manufacturing Sales: Tuesday, 12:30.Canada’s manufacturing activity slowed in January dropping 0.9% following 0.6% increase in December. This reading was much lower than the 0.2% rise predicted. Despite this low reading, manufacturing production edged up in the second half of 2011. Canadian manufacturing sector is struggling with the slump in global demand. A small drop of -0.1% is anticipated.
  3. Rate decision: Tuesday, 13:00. The Bank of Canada maintained its benchmark interest rate at 1.0% for the 12th consecutive month. However the central bank have signs of possible rate hikes in the near future in light of the improvement in the Eueo-zone and global stabilization. No change is forecasted.
  4. BOC Monetary Policy Report: Wednesday, 14:30. In January release, the Bank of Canada (BoC) released its quarterly monetary policy report predicting financial hardships in light of the Europe debt crisis and world wide global slowdown.  Canadian economy expanded by 2.4% in 2011, and is expected to grow 2% in 2012. This release should be more promising thanks to the improvements in global economy.
  5. Inflation data: Friday, 12:30. Consumer prices rose better than expected by 0.4% in February boosting the annual inflation rate from 2.5 percent in January to 2.6%.  Core inflation also edged up by 0.4% following 0.2% in January. Core prices are expected to rise 0.3% while CPI is expected to gain 0.5%.


* All times are GMT.

USD/CAD  Technical  Analysis

Dollar/CAD started the week with more range trading within the 0.9950 and parity lines (mentioned last week). It then broke above parity, hitting 1.0050 and challenging it again before sliding back and eventually closing under parity.

Technical lines, from top to bottom:

The round number of 1.03 was the peak of a move upwards seen in November 2010 and has found new strength after working as a cap in January 2012. 1.0263 is the peak of surges during October, November and December, but was shattered after the move higher. It’s far at the moment.

The round figure of 1.02 was a cushion when the pair dropped in November, and also the 2009 trough. It is weaker now but remains pivotal. 1.0143 was a swing low in September and worked as resistance several times afterwards.

In the battle lines around parity, 1.0050 was tough resistance in April 2012. Very close by, 1.0030 capped the pair twice in March 2012 but is now a bit weaker.

The very round number of USD/CAD parity is a clear line of course, where the fight continues.  Under parity, we meet the pivotal line of 0.9950. It served as a top border to range trading in March 2012 and later as a line in the middle of the range.

0.9888 was a double bottom at the beginning of April 2012 and is a key line on the downside for now.  0.9870 was a trough reached once and challenged afterwards, and serves a bottom border of the range.

0.9830 provided support for the pair during September and is now stronger after a first attempt to breach it failed.  0.9780, where the current run began is the next and important support line.

It is closely followed by 0.9736, which provided support during August 2011.  The veteran 0.9667 line worked as support at the beginning of 2011 and then for several months during the spring. It is a very clear and strong line on the chart.

I remain neutral on USD/CAD.

Canada’s strong employment figures counter the global weakness for now. Regarding the US, which is critical for Canada’s economy, the picture is more complex than earlier, also supporting the neutral stance. The economy is doing OK, but some worrying signs like the recent weak jobless claims that followed the mediocre NFP are a source of concern.

Further reading: