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The Canadian dollar eventually made gains against the USD, yet the battle was tough. Apart from the Greek elections which impact the whole world, domestic inflation data and retail sales are the main events this week. Here is an outlook on the major market-movers an updated technical analysis for the Canadian dollar.

Soft figures were released last week with lower than expected rise in New Home Price Index and an unexpected drop of 0.8% in Manufacturing sales following 1.9% gain in March. Will Canadian economy snap out of this slowdown?

Updates: Foreign Securities Purchases will be released later on Monday. After a terrible reading in May, the market estimate for the June reading stands at 3.41 billion. USD/CAD is choppy, and was trading at 1.0244.   Foreign Securities Purchases were outstanding, posting a reading of 10.20 billion. This easily exceeded the market forecast of 3.41B. Wholesale Sales will be released later on Tuesday. The loonie edged upwards, as USD/CAD was trading at 1.2028. Wholesale Sales looked sharp, jumping 1.5%. This easily exceeded the market forecast of 0.4%. Core Retail Sales, a key indicator, will be released on Thursday. The loonie has taken advantage of across-the board weakness in the US dollar, as USD/CAD was trading at 1.0175. This is the Canadian dollar’s highest level in almost one month. Core Retail Sales, a key indicator, will be released later on Thursday. The markets are predicting a modest 0.2% gain. Retail Sales will be released at the same time. The loonie was down, as USD/CAD crossed above the 1.02 line. The pair was trading at 1.0207.

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

USD/CAD Chart June 18 22 2012

  1. Greek elections: Sunday evening, with a long lasting impact. The Canadian dollar is expected to mirror the euro, at least at the beginning of the week, depending on the outcome: a pro-bailout victory(USD/CAD falls at first), an anti-bailout victory (USD/CAD rises at first) or a hung parliament (USD/CAD rises slowly). See details here: how to trade the Greek elections.
  2. G20 Meetings: Mon-Tue. The next G20 meeting will be held in Los Cabos, Mexico where finance ministers and central bank governors coming from 19 states  will discuss global issues. However the central theme of this meeting will be the European debt crisis. The meeting starts a day after Greek elections which could decide whether the country stays in the euro zone. Brazil conditions its monetary contribution to the IMF Funding on having more power at the IMF. Voting power at the IMF is currently dominated by the United States and other developed powers.
  3. Foreign Securities Purchases: Monday, 12:30. Foreign investors sold off C$2.08 billion ($2.06 billion) of their Canadian securities in March, compared to an investment of C$12.54 billion in February. Economists expected a lower fall to C$9.34 billion. A rise to C$3.41 billion is predicted now.
  4. Wholesale Sales: Tuesday, 12:30. Canadian wholesale sales continued to strengthen in March, climbing 0.4% from February amid stronger sales in automobiles and parts rising 2.4%. The increase topped the 0.3% increase predicted by analysts. Another increase of  0.6% is predicted this time.
  5. Retail sales: Thursday, 12:30. Canadian retail sales rebounded in March with a 0.4% gain following a drop of 0.2% in February. This rise indicates improvement in consumer spending though less than the growth levels in 2011. Meantime Core sales excluding automobiles and parts, increased by a mere 0.1%, less than the 0.5% increase anticipated by analysts. Nevertheless the 0.4% gain in retail sales should support GDP growth. Retail sales is expected to gain 0.4% while Core sales is expected to rise by 0.2%.
  6. Mark Carney Speaks: Thursday, 15:45. BOC Governor is scheduled to speak in  Halifax. His speech can cause volatility in the market.
  7. Inflation data: Friday, 12:30. Inflation in Canada was higher than expected in April Both CPI and Core CPI increased by 0.4%, giving ground for future rate hikes. On a yearly base inflation rate climbed to 2.0% in April from1.95 in March while core CPI increased to 2.1% from 1.9%. However in case the Euro-Zone debt crisis worsen Canadian domestic economy will be badly affected. Both headline CPI and Core CPI are predicted to gain 0.3%.

* All times are GMT.

USD/CAD  Technical  Analysis

Dollar/CAD began the week with a gap lower, but found support at the 1.02 line (mentioned last week). It then climbed higher but didn’t go too far as 1.03 provided a nice cap. The pair closed just above the 1.02 line.

Technical lines, from top to bottom:

We remain at very high ground, due to extreme volatility that might be seen. 1.10 is a round number and also served as resistance back in 2009. s1.0850 was last seen in 2010, but has been very persistent as a cap for the loonie.

1.0750 was the peak of ranges several times in the past few years, and is a very important line. 1.0660 was last seen in September 2011, but this line was also a long running swing high several times beforehand.

1.0523 was a peak back in November and is minor resistance. 1.0460 capped the pair in June 2012 and also had a minor role in the past. It is now high resistance.

1.0360 was a pivotal line in June 2012 and is now significant resistance. The round number of 1.03 was resistance at the beginning of the year and now returns to this role. It worked perfectly well during June. 1.0245 served as a separator for the move up when the pair rallied in May 2010 but is weaker now.

The round figure of 1.02 was a cushion when the pair dropped in November, and also the 2009 trough. It is stronger once again after holding the pair in June. 1.0150 was a swing low in September and worked as resistance several times afterwards.

1.0050 was tough resistance in April 2012 and also in May. Very close by, 1.0030 capped the pair twice in March 2012 but is weaker now after working only temporarily in May.

The very round number of USD/CAD parity is a clear line of course, and the battle is renewed after the recent climb.

Under parity, we meet another pivotal line at 0.9950. It served as a top border to range trading in March 2012 and later as a line in the middle of the range.

0.99, the round number is now present on the graph after capping the pair in May 2012.  0.9840 provided support for the pair during September and was reduced to a minor line now.

Lower, 0.9725 worked as strong support back at the fall of 2011. The last line for now is 0.9667, which was another strong cushion in the past.

I am bullish on USD/CAD.

While Canada is relatively strong, and the central bank is hawkish, the Greek elections and the lack of QE3 could certainly boost the greenback and weaken also the currency. Only a coordinated action by central bankers could boost the loonie. This cannot be ruled out, but the chances remain low.

Further reading: