USD/CAD was fairly quiet, as the Canadian dollar posted modest gains last week. The pair closed at 1.0165. This week’s major event includes Core CPI and Core Retail Sales. Here is an outlook on the major market-movers and an updated technical analysis for USD/CAD.
After posting some strong numbers earlier in the month, Canadian Manufacturing Sales disappointed, posting a sharp drop of 2.6%. US numbers were mixed, as retail sales and employment numbers looked good, while consumer confidence missed the estimate. The Canadian dollar hopped on the currency bandwagon, and managed to post some gains on the week thanks to a broadly weaker US dollar.
Foreign Securities Purchases were very close to $15 billion, easily beating the estimate of $4.59 billion. US Building Permits almost matched the forecast, but US Housing Starts missed the estimate.
US Core CPI edged higher to 0.2%, matching the forecast.
Canada will release key CPI and retail sales data on Friday.
USD/CAD is on the move, and was trading in the mid-1.03 range.
US Unemployment Claims were above expectations. There was better news from Existing Home Sales and the Philly Fed Manufacturing Index, as both key releases beat their estimates.
USD/CAD daily chart with support and resistance lines on it. Click to enlarge:
Foreign Securities Purchases: Monday, 12:30. This indicator is directly linked to Canadian dollar purchases, as foreigners need to buy the Canadian currency in order to purchase Canadian securities. The past two readings have missed the estimate, and the markets are hoping that this trend ends quickly. The forecast for the June reading is at $4.59 billion.
Wholesale Sales: Wednesday, 12:30. Wholesale Sales is a leading indicator of consumer spending. The indicator has not surpassed the estimate since the January release. The previous reading came in at 0.3%, shy of the forecast of 0.4%. The markets are expecting an improvement in the June release, with an estimate of 0.5%.
BOC Governor Stephen Poloz Speaks: Wednesday, 16:40. The markets may need some time adjusting to the new Governor of the Bank of Canada. Stephen Poloz has taken over from Mark Carney, who takes over the reins of the Bank of England next month. Poloz will speak to the Chamber of Commerce in Oakville, Ontario.
Core CPI: Friday, 12:30. After a strong increase of 0.8% in the March release, Core CPI has posted small gains for the past two readings. The markets are expecting slight improvement, with an estimate of 0.3% for the June reading. Core CPI is considered to be more accurate than the CPI release, as the former excludes the 8 most volatile items which make up the CPI index.
Core Retail Sales: Friday, 12:30. This key consumer indicator looked weak in the previous release, posting a decline of 0.2%. This fell short of the estimate of 0.2%. The markets are expecting modest improvement, with an estimate of a flat 0.0%.
CPI: Friday, 12:30. CPI is one of the most important economic indicators, and often affects the movement of USD/CAD. The index posted a decline of 0.2%, in the May release, missing the estimate of 0.0%. The estimate for the upcoming release stands at 0.4%.
Retail Sales: Friday, 12:30. Retail Sales came in at a flat 0.0% in the May release, shy of the estimate of 0.2%. The markets have not changed their forecast, with an estimate of 0.2%. Will the indicator meet or beat the prediction this time around?
* All times are GMT
USD/CAD Technical Analysis
Dollar/CAD started the week at 1.0209. The pair touched a high of 1.0251 early in the week, as resistance at 1.0285 (discussed last week) held firm. The loonie then retracted, as the pair fell all the way to a low of 1.0137. Dollar/CAD closed out the week at 1.0165.
Live chart of USD/CAD: [do action=”tradingviews” pair=”USDCAD” interval=”60″/]
Technical lines, from top to bottom:
We start with 1.0758. This is a strong resistance line which has held firm since April 2010. Next, 1.0652 has been providing resistance since early September 2010. This marked a peak as USD/CAD went on a steep slide, falling as low as the 95 line.
1.0523 was a peak back in November 2011 and continues to provide strong resistance. 1.0446 was the peak that the pair recorded in June 2012 and remains a key line on the upside.
The line of 1.0340 was in a support role in early June, but was breached in the current rally by the Canadian dollar. It has reverted to a resistance line. We next encounter resistance at 1.0285. This line has strengthened as USD/CAD trades at lower levels.
1.0180 saw a lot of action last week, and has reverted to a resistance role. This line is weak, and could be tested early in the week.
USD/CAD is receiving important support at 1.0125. The round number of 1.01 was a trough back in July, 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 in 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.
0.9950 provided some support for the pair during November and worked as resistance earlier. There is further support at 0.9880, which showed that it is a clear separator in October 2012, and continues to provide strong support.
Next is 0.9773, which last saw action in November 2012. The final support line for now is at the round number of 97.
I am neutral on USD/CAD
US releases were mostly on the positive side last week, and a stronger US economy is good news for Canada, whose economy is heavily dependent on its southern neighbor. This week’s Canadian retail sales and inflation numbers could have a major effect on the movement of USD/CAD. If these numbers are solid, we could see the pair move closer to the all-important parity level. At the same time, speculation has increased that the Fed will taper QE, which is US dollar positive.
Further reading:
For a broad view of all the week’s major events worldwide, read the USD outlook.
Kenny Fisher - Senior Writer
A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.
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