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USDCAD Forecast May5-9USD/CAD posted modest losses last week, as the Canadian dollar ended the week below the key 1.10 level, closing at 1.0970.  This week has five major events, highlighted by Employment Change. Here is an outlook on the major events and an updated technical analysis for USD/CAD.

The Fed taper train continues to chug along, and the week ended with an excellent US Nonfarm Payrolls  release.  As well, manufacturing and consumer confidence indicators were solid. At the same time, Federal Reserve chair Janet Yellen remains cautious about the US economy. It was a uneventful week for Canadian releases, with GDP posting a small gain that matched expectations.

[do action=”autoupdate” tag=”USDCADUpdate”/]USD/CAD daily chart with support and resistance lines on it.

Click to enlarge:

  1. Trade Balance: Tuesday, 12:30. Trade Balance is closely linked with currency demand, as foreigners must purchase Canadian dollars to buy Canadian goods and services. After three straight deficits, March posted a surplus of $0.3 billion, beating the estimate of $0.2 billion. The markets are expecting a larger surplus in the upcoming release, with an estimate of $0.4 billion.
  2. Ivey PMI: Tuesday, 14:00. This index continues to post readings above the 50-point level, pointing to continuing expansion. The previous release dipped to 55.2 points, falling short of the estimate of 58.3 points. The forecast for the April release stands at 54.5 points.
  3. Building Permits: Wednesday, 12:30. Building Permits tends to show strong fluctuations, resulting in market estimates which are well off the mark. The April reading slumped to -11.6%, well below the estimate of -2.4%. This was the weakest reading we’ve seen in six months. The markets are expecting a strong turnaround in the April release, with a forecast of 3.9%.
  4. Housing Starts: Thursday, 12:15. Housing Starts experienced a sharp drop last month, falling to just 157 thousand, compared to 192 thousand in March. This fell well short of the estimate of 193 thousand. April is expected to bring better news, with an estimate of 177 thousand.
  5. NHPI: Thursday, 12:30. New Housing Price Index  is an important gauge of activity in the housing industry. The index continues to post small gains, with the April reading coming in at 0.2%, which matched the forecast. An identical reading is expected in the April release.
  6. Employment Change: Friday, 12:30. Employment Change is one of the most important economic releases and an unexpected reading can have a major impact on USD/CAD. The indicator shot higher in March, with a superb gain of 42.9 thousand, way above the estimate of 21.5 thousand. The markets are expecting a more modest gain in the upcoming release, with the estimate standing at 14.9 thousand.

*All times are GMT.

 

USD/CAD Technical Analysis

USD/CAD  opened the week at 1.1035 and  touched a high of 1.1040. The pair then dropped below the 1.10 line, falling to a low of 1.0936.  USD/CAD  closed the week at 1.0970, as support at 1.0945 (discussed last week) remained firm.

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

 

Technical lines, from top to bottom:

We start with resistance at 1.1535. This line  provided key support back in early 2007 and has been a resistance line since July 2009.

1.1369 fell in October 2008 as the US dollar posted  sharp gains, climbing as high as the 1.21 level.

1.1124  remains a strong  resistance line. It has held firm since late March.

USD/CAD spent much of  the month of April close to the  psychological barrier of 1.10. This level  was breached again last week and has switched to a resistance line. It is a weak line and could see more action early this week.

1.0945  is the  next line of support for the pair. It held steady as the pair broke below the 1.10 line.

1.0853 is a strong support line. It has remained intact since January.

1.0723 was a cap in mid-2010, before the US dollar tumbled and dropped all the way into 0.93 territory.

1.0660 saw a lot of activity in the second half of December and continues to provide strong support.

1.0519 is the final support level for now. It has been a strong support line since late November.

 

I am  bullish on USD/CAD

US  releases  enjoyed a good week, and the employment picture looks better, with a superb Nonfarm Payrolls and a drop in the Unemployment Rate. So,  market sentiment towards the US dollar should be positive. We could see a busy week from the pair, with a host of Canadian key releases.  Building Permits and Employment Change will have to look sharp, or the loonie could lose ground.

Further reading: