USD/CAD Outlook May 13-17

USD/CAD was already very close to the parity line, but retreated on the dollar storm. Manufacturing Sales and inflation data are the main market-movers this week. Here is an outlook on the major market-movers and an updated technical analysis for USD/CAD.

Last week, Canada’s jobs report came out within expectations; unemployment rate remained 7.2% in April and the economy added 12.5K jobs, a bit lower than the 14.8K estimated. However the data is volatile since March’s big job loss was offset by a gain in February of about the same size at 50,700 jobs. Nevertheless, the data is encouraging. Will the Canadian Job market continue to expand?

Updates: The pair is trading around 1.0140. The Canadian dollar is on the back foot against the greenback, together with may other currencies. USD/CAD showed little change after the release of US retail sales data. Core Retail Sales declined 0.1%, matching the forecast. Retail Sales edged up 0.1%, beating the estimate of a 0.3% decline. Canada will release Manufacturing Sales, a key event on Wednesday. USD/CAD dropped below the 1.01 line on Wednesday, but has bounced back. The pair was trading at 1.0136. Wednesday: The Canadian dollar continues suffering from the greenback’s strength and is flirting with 1.02. Manufacturing Sales, a key indicator, declined 0.3%. This was way off the estimate of a 0.6%. gain. Foreign Securities Purchases came in at 1.19B, well below the forecast of 5.36B. The BOC Report, published each quarter, will be released later on Thursday. Core CPI is Friday’s market-mover. USD/CAD is steady, as the pair was trading at 1.0178. See how to trade the Canadian Core CPI with USD/CAD. The Canadian dollar began retreating before the publication of data. Update: Canadian inflation came short of expectations, with annual CPI only at 0.4%. This weakness sent USD/CAD above 1.03.

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

1. Manufacturing Sales: Wednesday, 13:30. Canadian factory sales soared in February, jumping 2.6% after falling 0.6% in the previous month. This was the fastest improvement in 20 months. The strong rises occurred in auto assembly, food processing, petroleum and coal and miscellaneous sectors. Economists expected a small increase of 0.6%. However the first quarter is 2.6% weaker than the last quarter of 2012, indicating full recovery has not yet arrived. A rise of 0.6% is expected now.
2. Foreign Securities Purchases: Thursday, 13:30. Foreign investors sold C$6.3 billion from Canadian securities in February, following a strong acquisition of C$14.324 billion in January. Domestic investors increased their purchases of foreign bonds in February, acquiring C$3.8 billion after selling C$3.351 billion in January.  Purchases in the sum of C$5.36 billion  are expected this time.
3. Inflation data: Friday, 13:30. Canada’s inflation moderated in March amid lower gasoline prices. On a monthly basis, the inflation rate reached 0.2% following a 1.2% increase. Meanwhile Core inflation registered a 0.2% gain following a 0.8% rise in the previous month, in line with market predictions. CPI is expected to climb 0.1% while core CPI is predicted to gain 0.2%.
4. Wholesale Sales: Friday. 13:30. Canadian wholesale trade remained unchanged in February, held back by lower purchases of machinery, equipment and supplies. Economists expected a   0.4% rise. Wholesalers in seven of Canada’s 10 provinces reported higher sales, but these were offset by a 1.1 percent drop in Ontario, the largest province. A rise of 0.4% is anticipated.

* All times are GMT

USD/CAD Technical Analysis

Dollar/CAD started the week with an attempt to break the 1.01 line (mentioned last week), but the line held well. It then fell and got very close to parity, before making an upwards move, but it eventually managed to close under 1.01.

Technical lines, from top to bottom:

1.0523 was a peak back in November 2011 and is minor resistance. 1.0446 was the peak that the pair recorded in June 2012 and is a key line on the upside.

1.0340 was the peak during March 2013 and its position strengthens at the moment. Consequent rises failed to reach this line, and this could be a bearish sign. 1.0285 replaces the round 1.03 line – the pair found resistance at this line during April 2013.

1.0250 was a peak before the pair moved below parity a long time ago, and worked as support quite well in March 2013. It is stronger once again. 1.0180 provided support for the pair during March, and late switched to resistance. It is now a pivotal line.

1.0125 gave its support to the pair during April 2013 and remains important despite the temporary break.  1.01, was a trough back in July, 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 2013. It is a clear separator.

0.9950 provided some support for the pair during November and worked as resistance earlier.  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.

I remain bearish on USD/CAD

While the Canadian dollar was hit by the dollar’s storm, the reason by the storm is positive: the US economy is improving (at least in terms of jobs), and this is positive for Canada, which needs US demand. In addition, the jobs report in Canada was good enough, and helps the Canadian dollar. Also the  price of oil  supports the loonie.

 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