USD/CAD Outlook July 8-12

The Canadian dollar lost ground on Friday, as the Canadian Ivey PMI dropped sharply and Canadian employment numbers were unimpressive. As well, a strong US Non-Farm Payrolls release boosted the US dollar.

Updates:

• USD/CAD began the week trading around 1.0550. Building permits exceed expectations: they rise by 4.5%, significantly better than a rise of 2.6% that was expected. In addition, this came on top of an upwards revision for the previous month’s data: a rise of 11.5% instead of 10.5% originally reported.
• USD/CAD is now lower, at 1.0525, helped also by stronger than expected housing starts: 200K instead of 189K expected.
• The Canadian dollar continue advancing against the greenback and temporarily fell under 1.05. USD is retreating across the board towards the release of the FOMC meeting minutes and Bernanke’s speech.
• FOMC Minutes  send a confusing message  and  weaken the US dollar.  Bernanke then sends the dollar plunging with dovish comments on the US economy. USD/CAD is significantly lower: 1.0440.
• USD/CAD falls all the way down to 1.0325 in the Bernanke burnout in the Asian session, and then recovers. However, and contrary to other currencies, the Canadian dollar shows a lot of resilience.
• US Unemployment Claims was a disappointment, climbing to 360 thousand. The estimate stood at 342 thousand.
• USD/CAD has risen to the mid-1.03 range.
• Some dollar strength pushes the pair higher, and USD/CAD is at 1.0374.
• Opinion:  Canadian dollar’s reaction to Bernanke was the strongest – USD/CAD buy opportunity?

USD/CAD daily chart with support and resistance lines on it. Click to enlarge:  

1. Building Permits: Monday, 12:30.  Building  Permits is  the key release this week. This indicator is an important gauge of activity in the construction sector, and can affect the movement of USD/CAD. Building Permits has looked very sharp, with the previous release posting an excellent gain of 10.5%. This crushed the estimate of -2.3%. The markets are expecting a much lower reading for the July release, with an estimate of 2.6%. Will the indicator surprise the markets with another sharp rise?
2. BOC Business Outlook Survey: Monday, 14:30.  This report is released quarterly by the Bank of Canada. It surveys about 100 Canadian businesses for their views of general business conditions, including spending and hiring projections. The previous report painted a pessimistic report of business sentiment, and the Canadian dollar lost ground as a result.
3. Housing   Starts:  Tuesday, 12:15.  Housing Starts helps analysts gauge the health of the housing sector, which is a critical component of economic growth. The indicator looked good last month, posting 200 thousand starts, the best numbers we’ve seen since November 2012. The estimate for the July release is 191 thousand. Will the indicator again surprise the markets and beat this prediction?
4. NHPI:  Thursday, 12:30. This housing inflation index provides a snapshot of activity in the housing sector. The indicator has posted very modest gains in 2013, and the June release came in at 0.2%. The markets are expecting a slightly improved release this time around, with an estimate of a 0.3% gain.

* All times are GMT

Live chart of USD/CAD:  [do action=”tradingviews” pair=”USDCAD” interval=”60″/]

USD/CAD Technical Analysis

Dollar/CAD  opened the week  at 1.0522. The pair  dropped to a low of  1.0473, breaking through support at 1.0523 (discussed last week). Dollar /CAD  bounced back sharply at the end of the week, breaking past the 1.06 as it touched a high of 1.0609. Dollar/CAD closed the week at 1.0573.

Technical lines, from top to bottom:

1.1028 is providing strong resistance. This  is followed by 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. The pair moved made a move towards this line late in the week, breaking above 1.06 before retracting.

1.0523 was a peak back in November 2011 and has reverted to a support level as the pair pushed higher this week. It is a weak line, and could face pressure if the Canadian dollar shows some strength.

1.0454 continues to provide support. This line has strengthened as the pair trades at higher levels.

1.0340, which  saw a lot of activity in June, is next. This is followed by 1.0285, which was breached  as a resistance line  in mid-June.

1.0175 is the next line of support. It is close to the low point of the start of a US dollar rally in mid-June which is still ongoing.

The round number of 1.01 was a trough back in July 2012, and switched to resistance afterwards. It has reverted  back to a support line, and has held firm since mid-May.

1.0050 provided support for the pair in May 2013 and on other occasions beforehand. It remains a barrier before parity. The very round number of USD/CAD parity is a clear separator, and the battle was very clear to see at the beginning of August 2012 and also in 2013.

The final support line for now is 0.9950. This line  provided some support for the pair during November and worked as resistance earlier.

I  remain  bullish  on USD/CAD

The US dollar is broadly stronger thanks to some strong employment data last week, and continues to push the loonie to lower levels. Unless this week’s Canadian releases surprise the markets with some unexpectedly sharp numbers, we could see the US dollar rally continue.

 Further reading:

• 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.