USD/CAD rallied on the dovish rate statement and conquered the parity line. Will it move up from here? Or fall back down? GDP is the highlight of this week. Here is an outlook on the major market-movers and an updated technical analysis for USD/CAD.
Last week, The Bank of Canada released a rather dovish rate statement, in light of recent sluggish economic growth and the weaker than anticipated global economic outlook. The Bank of Canada reduced its expectations that the economy will reach full capacity in 2014, announcing growth will be significantly below its 2% target for much of 2013. However, CAD could still make a comeback. Will it happen now?
Updates: Outgoing BOC Governor Mark Carney spoke at a financial forum in Zurich. Carney will be taking over the reins of the Bank of England in July. USD/CAD was trading at 1.0059. Canadian GDP, released monthly, rose 0.3%, beating the estimate of 0.2%. RPMI declined by 2.0%, surprising the markets, which had expected a 0.9% gain. IPPI posted a flat 0.0%, a notch lower than the forecast of 0.1%. USD/CAD is steady, as the pair was trading at 1.0018.
USD/CAD daily chart with support and resistance lines on it. Click to enlarge:
- GDP: Thursday, 13:30. The Canadian economy expanded a mere 0.1% in October, following a flat reading in September and a 0.1% contraction in August completing the worst fourth quarter in more than a year. Wholesale and retail trade registered gains as well as oil and gas extraction. But the manufacturing sector continued to contract as well as mining, construction and real estate agents and brokers. Canadian economy is forecasted to register a 0.6% growth rate in the fourth quarter, well below the BOC expectation of a 2.5% gain. Canada is expected to grow 0.2% in November.
- RMPI: Thursday, 13:30. Canada’s producer price index dropped 0.3% in November following a decline of 0.1% in October, amid lower gasoline and other energy products. The decline was stronger than the 0.2 drop predicted. On a yearly base, the producer price index declined 0.5% for the fourth consecutive year-on-year decrease. Meanwhile the raw materials price index declined 1.9% in November, missing market forecasts of a 1.0% drop, mainly due to lower crude oil prices. RMPI is expected to climb 0.9%, while IPPI is forecasted to gain 0.1%.
* All times are GMT.
USD/CAD Technical Analysis
Dollar/CAD began the week trading at a limited range. It then made a leap, crossed the 0.9880 line (mentioned last week) and eventually peaked at the 0.9950 line before retreating. 0.9910 provides support.
Technical lines, from top to bottom:
We start from higher ground this time: 1.0250 was a peak before the pair moved below parity. 1.02 was the trough of 2009 and remains important since then, working in both directions.
Another round number, 1.01, was a trough back in July, and switched to resistance afterwards. 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.
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. 0.9950 provided some support for the pair during November and worked as resistance earlier. Its stubborn behavior as resistance in December proved its strength. This line is close once again.
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.
0.9817 was a stubborn peak in September and is now significant support. As seen in December 2012, this line worked as a cushion. It worked very nicely in January 2013. Lower, 0.9725 worked as strong support back at the fall of 2011 and showed its strength once again in October 2012.
0.9667, which was another strong cushion in June 2011 is the next line. The round number of 0.96 provided some support back in 2011 and is minor now.
I am neutral on USD/CAD.
The relatively dovish rate decision in Canada still isn’t as bearish as QE4 in the US. In addition, the Canadian economy is still in a better shape. The pair is likely to consolidate around parity, just from the other side.
USD/CAD is not the easiest pair to trade lately. Here are 5 most predictable pairs for Q1 2013.
- 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.
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