A busy week expects loonie traders, with a rate decision, retail sales and inflation numbers among others. Here’s an outlook for the Canadian events, and an updated technical analysis for USD/CAD.
USD/CAD daily chart with support and resistance lines marked. Click to enlarge:
USD/CAD was reached in the past week, but yet again, it didn’t hold. Will this happen again? Or will the dollar recover? Let’s start:
- Foreign Securities Purchases: Monday, 12:30. The total value of purchases from foreigners serve as a gauge of confidence in the Canadian economy. After topping 23 billion three months ago, the figure dropped to 5.4 billion in the past two months. A small rise to 6 billion is due now.
- Rate decision: Tuesday, 13:00. After three consecutive rate hikes, the Bank of Canada is expected to leave the Overnight Rate unchanged this time. The previous statement, the recent economic indicators and the ongoing “currency war” all indicate to this direction. Any hints about future policy will rock the loonie.
- Wholesale Sales: Wednesday, 12:30. This report, from the back end of the consumption chain, always moves the currency. In the past four months, the figure was quite disappointing. Following last month’s 0.1% drop, expectations are high once again – a rise of 0.5%.
- BOC Monetary Policy Report: Wednesday, 14:30. Completing the rate decision, the Bank of Canada will release its quarterly report about inflation and an overview of the economy. More hints about future rate decisions are expected. 45 minutes after the report is released, a press conference by BOC governor Mark Carney is held, and will also shake the currency.
- Leading Index: Thursday, 12:30. 10 indicators are combined for this composite index. While most of them were already released earlier, the indicator tends to move the loonie. After last month’s neat rise of 0.5%, a rise of only 0.2% is expected now.
- CPI: Friday, 11:00. Inflation is stable in Canada. Perhaps too stable. Last month saw a drop of 0.1% in the consumer price index and a rise of 0.1% in core prices. This time, there are expectations that prices will slightly pick up, with CPI rising by 0.2% and core CPI by 0.3%. Also these rises aren’t enough to push for a rate hike soon.
- Retail Sales: Friday, 12:30. Retail sales disappointed by dropping last month. The drop of 0.4% in core retail sales was more disappointing. This time, core retail sales are expected to correct with a 0.5% rise, while retail sales are likely to drop once again.
* All times are GMT
USD/CAD Technical Analysis
At the beginning of the week, USD/CAD continued the trend from the previous week and continued descending, dropping below parity for the first time since April. It then bounced back up and eventually closed at 1.0098, higher than last week’s close.
At the current close, the 1.01 line continues to serve as resistance. This was a low point in August and worked as a pivotal point now. 1.02, which was the 2009 low, is the next resistance line.
The 1.0350 line is a very strong resistance line on the upside. It capped the pair several times in recent months. Higher, 1.05 held the pair twice during August is a tough line..
Above, the stubborn 1.0680 served as resistance in July and in August, for more than one day in each attempt to break. Higher, 1.0750 was a swing high during May and also the limit of a long-term range in 2009. Even higher on the upside, 1.0850, which was also a swing high in May.
Looking down, there aren’t many lines: the pair is still close to the ultimate support line – parity. Below 1, the next line of support is 0.9930.
Even lower, 0.98 and 0.97 were lines of support back in 2008, and are not so far now.
I turn from neutral to bullish on USD/CAD.
With quantitative easing already well priced into the greenback, and with a probably pause in rate hikes, the Canadian dollar is set to lose ground, especially as Canadian employment isn’t that good.
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/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.
- For the New Zealand dollar (kiwi), read the NZD forecast.
- For USD/CAD (loonie), check out the Canadian dollar forecast.
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