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The Canadian dollar  posted strong gains  against the US dollar this week, as USD/CAD  dropped about two  cents.  This week’s major events include Manufacturing Sales, the BOC Overnight Rate and Core CPI.  Here is an outlook on the major market-movers and an updated technical analysis for USD/CAD.

The Canadian dollar took advantage of the US dollar’s broad weakness last week, as the Fed appeared to put QE tapering on hold. The loonie was also helped by another strong Canadian Housing Starts release.

Updates:

  • USD/CAD rose above the 1.04 line in the wake of the new week, thanks to the greenback’s strength. But, weak retail sales in the US sent the pair to challenge this line once again.
  • USD/CAD continues to advance, rising to 1.0430. Manufacturing sales from Canada is in the limelight.
  • Manufacturing Sales rebounded nicely, jumping from -2.4% to 0.7%, matching the forecast.
  • Weak housing data in the US  and the  lack of news from Bernanke in the prepared testimony  pushed the dollar a bit lower. USD/CAD is under 1.04 ahead of the Canadian rate decision.
  • The BOC maintained its  key interest rate at 1.0%, as expected. BOC Governor presided over his first policy meeting. Poloz stated that the economy continues to underperform and a low inflation forecast leaves room for further rate reductions.
  • Foreign Securities Purchases dropped sharply, from C$14.91 billion to C$6.71 billion. Wholesale Sales jumped 2.1%, its best gain  in over two years.
  • Core CPI and CPI will be released on Friday.
  • The loonie has weakened and pushed back above the 1.04 line.
  • General dollar weakness helps the loonie advance and USD/CAD trades under 1.04 once again. CPI is eyed.
  • Canadian CPI rises 1.2% year over year as expected. It remained flat month over month. Core CPI dropped 0.2% month over month, as expected. USD/JPY remains in range.

USD/CAD daily chart with support and resistance lines on it. Click to enlarge:   USD CAD Forecast July 15-19

  1. Manufacturing Sales: Tuesday, 12:30. This key indicator has run into some turbulence, posting declines for the past two releases. In June, the indicator shed 2.4%, way off the estimate of a 0.3% gain. The markets are expecting a strong turnaround in the upcoming release, with an estimate of 1.1%. Will the indicator meet or beat this rosy prediction?
  2. Foreign Securities Purchases: Wednesday, 12:30. Foreign investors  purchased C$14.91 billion from Canadian securities in May, the highest amount this year. This easily  beat the estimate of C$45.9 billion. Purchases in the sum of C$10.23 billion are expected this time. This indicator is closely connected to currency demand, as foreigners need to buy Canadian dollars in order to buy Canadian securities.
  3. BOC Overnight Rate: Wednesday, 14:00. The BOC key interest rate has been pegged at an even 1.00% since July 2010. No change is anticipated in the July release, which will  be communicated in a rate statement. This will be the first rate setting from the BOC’s new governor, Stephen Poloz.
  4. BOC Monetary Policy Report: Wednesday, 14:30. The BOC releases this report each quarter. It details the central bank’s view on  economic and  financial  factors which  determine its monetary decisions, such as interest rate levels. A follow-up press conference will be held, which could lead to some volatility in USD/CAD.
  5. Wholesale Sales: Thursday, 12:30. Canadian Wholesale  Sales is an important indicator of consumer spending.  The indicator has been posting modest gains, with a 0.2% rise in May. The estimate for the upcoming release is slightly higher, at 0.4%.
  6. Core CPI: Friday, 12:30. Core CPI is one of the most important indicators, and can have a strong impact on the movement of USD/CAD. This index excludes the 8 most volatile items which are found in CPI, thus making it a more reliable indicator. The index posted a 0.2% gain in May, missing the estimate of 0.3%. The markets are bracing for a very weak reading for June, with an estimate of -0.3%. Will the index surprise the markets with another gain?
  7. CPI:  Friday, 12:30.  CPI is an  important consumer inflation indicator. The index  improved to 0.2% in May, but fell short of the  estimate of 0.4%. The forecast for the June reading remains at 0.2%.

* All times are GMT

USD/CAD Technical Analysis

Dollar/CAD started the week  quite high, at 1.0579. After touching a high of 1.0585, it  dropped  sharply,  hitting a low of 1.0326, as the support level of 1.0285  (discussed last week) held firm.  The pair closed the week at 1.0377.

 

[do action=”tradingviews” pair=”USDCAD” interval=”60″/]

 

Technical lines, from top to bottom:

We begin with resistance at 1.0853, which has held steady since September 2009.

1.0705 saw a lot of action in  January 2010, but  has quietly provided solid resistance since then. 1.0652 has been providing resistance since early September 2010.

1.0523 was a peak back in November 2011 and  was providing weak support at the start of the week. It has reverted back to resistance following  strong gains by the Canadian dollar. 1.0446 was the peak that the pair recorded in June 2012 and is again a key line on the upside.

1.0340 was the peak during March 2013, and weakened as a support line this week.  It could  be tested if  the loonie can maintain its upward momentum.

1.0250 was a peak before the pair moved below parity a long time ago, and worked as support quite well in March 2013. 1.0180 provided support for the pair during March, and saw a lot of activity in the first half of June. It continues to provide the pair with strong support.

The round number of 1.01 was a trough back in July 2012 and switched to resistance afterwards. The line proved its strength several times in 2013.

1.0050 provided support for the pair in May 2013 and in other occasions beforehand. It remains a barrier before parity. 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 early 2013.

0.9910 was last tested in January, which marked the start of a strong US dollar rally which saw USD/CAD climb to the mid-1.03 range.

The final support line for now is at the round number of 0.9800. It marked a low point of a rally by the US dollar in April 2012, and has remained in place since October.

 

I  am bullish  on USD/CAD

The Canadian dollar was full marks this  week, with some impressive gains at the expense of the US currency. Although Canadian construction and  housing indicators looked solid this week, the gains by the loonie were mainly attributable to a broadly weaker US dollar. The Canadian economy is having trouble, and if the US economy continues to point upwards, talk of QE tapering will continue, which is bullish for the US dollar.

 

Further reading: