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Loonie traders expect a calm week in terms of Canadian events. Here’s an outlook for these events and an updated technical analysis for USD/CAD.

USD/CAD chart with support and resistance lines marked. Click to enlarge:

Canadian dollar forecast

Most indicators were weak last week – foreign cash flows squeezed significantly, wholesale sales shrunk, and Core CPI unexpected dropped, reducing the chance of a rate hike in the near term. All this hurt the Canadian dollar. Will the loonie recover now? Let’s start:

  1. Retail Sales: Published on Tuesday at 12:30 GMT. The volume of sales has been very disappointing in the past two months. They fell below expectations and squeezed. After sales dropped by 0.2% and core retail sales fell by 0.1% last month, rises are expected this time – 0.4% in retail sales and 0.1% in core retail sales.
  2. John Murray talks: Starts speaking on Tuesday at 16:30 GMT. The BOC Deputy Governor will be talking about the core issue – monetary policy. This is an excellent opportunity to hear what this senior figure can say about future rate moves, after the Bank of Canada already lifted the rate twice.
  3. Corporate Profits: Published on Wednesday at 12:30 GMT. This quarterly figure has been superb in the past three quarters. The strength of corporates has gone hand in hand with the improvement in the economy. Q2 is expected to show a similar rise to Q1’s 4.8% growth rate.

USD/CAD Technical Analysis

The Canadian dollar had a good start to the week, with USD/CAD dropping towards the 1.0280 support line. It later went up, struggling around the 1.04 line, and almost breaching the 1.05 line – all were mentioned in last week’s outlook.

At 1.0453, USD/CAD is now in a range between 1.04, which worked as a long-term support line and also as a line of resistance in the past year, and 1.05, which became a strong resistance line after capping the pair in the past week.

Looking down, the 1.0280 is the next strong line of support, holding the pair from falling int he past week, repeating this role from a few months ago. It’s followed by the 2009 low of 1.02 which also worked in both directions, also after the pair reached parity.

Lower, 1.01 worked as a support line at the beginning of August and is a minor line of support. The last line is the ultimate parity line – 1.01.

Looking up, 1.0680 was a stubborn line of resistance for four days at the beginning of July. Higher, 1.0750 was the top border of a long-term range, and was also tested in the month of May.

Above, 1.0850 provided the last line of resistance when the pair leaped in May, and was also a swing high in 2009. Above this line, there’s only the far line of 1.1130.

I am bearish on USD/CAD.

Canadian fundamentals are still strong enough to weather the global storm caused by Ben Bernanke. The pair should stabilize this week and prepare for another assault on parity later on.

Further reading:

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