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The  Canadian dollar  found itself at parity with the US dollar, but this didn’t persist and it eventually strengthened very nicely.  Inflation rate is the highlight of this week. Here’s an  outlook  for the Canadian events, and an updated technical analysis for USD/CAD.

Update: USD/CAD at 2011 high after Bernankethe disappointing statement sent the pair well above parity. Watch the next levels above.

Last week Canadian manufacturing sales doubled  expectations in July rising 2.7% while 1.3% increase was predicted and following 1.3% decrease in the previous month, indicating, the economy better in the third quarter than in the second distancing itself from the risk of recession. Will this trend continue?

USD/CAD  daily chart with support and resistance lines on it. Click to enlarge:USD CAD Chart September 19 23 2011

  1. Timothy Lane speaks:  Monday, 18:00. Timothy Lane BOC Deputy Governor will speak in a conference inToronto. His words may convey information on rate policies.
  2. Leading Index: Tuesday, 12:30. Canadian composite leading indicator increased by 0.2% in July, more than the 0.1% gain predicted and following 0.1% gain in the previous month. Household consumption and employment showed the biggest increase. A further increase of 0.4% is expected now.
  3. Wholesale Sales: Tuesday, 12:30. The value of Canada’s wholesale trade increased by 0.2% in June, following 2.0% climb in May, lower than the 0.3% gain predicted. The increase was mainly due to higher prices. A climb of 0.4% is expected.
  4.  Inflation data: Wednesday, 11:00.Canada’s annual inflation rate dropped in line with expectations reaching 2.7% in July from 3.1% in June. However on a monthly base  both CPI and Core CPI advanced by 0.2% from June. CPI is predicted to increase by 0.1% while Core CPI by 0.2%.
  5. Retail sales: Thursday, 12:30. Canadian retail sales increased by 0.7% in June from May although the rise occurred due to automobile sales. Meanwhile Core CPI  dropped by 0.1% causing the BOC to reduce its growth rate prediction for the second quarter. Retail sales is forecasted to drop 0.2% while Core retail sales is predicted to climb 0.2%.

*All times are GMT.

USD/CAD  Technical  Analysis

The Canadian dollar moved below the US one, but once again, this was short lived. It eventually dipped lower. An initial recovery attempt stopped at the 0.9977 line (discussed last week) before the pair shot lower, to close at 0.9780.

Technical lines, from top to bottom:

1.0140, which provided a cap for the pair towards the end of 2010 is our top line for now.  The final line above parity is 1.0060. It was the highest level in 2011. The pair got close to it

The very round number of USD/CAD parity is a clear line of course, and it will be closely watched.  Under parity, we have two close lines – 0.9977, which was a trough in 2010, was also tested at the beginning of March and proved to be significant just now.

Below, 0.9915 was a peak back in June and is now minor resistance, after being run through recently.

0.9825 provided support for the pair in September and also worked as resistance back in May. It is now immediate resistance. 0.9725 was the lowest level since July and is the immediate line of support.

0.9667 was a cushion in March and later worked as resistance. This line provided support recently, and had an important role in holding back recovery attempts, over and over again. The break above it pushed the pair quickly. 0.9525 was a bottom in April, and worked as resistance afterwards.

I am neutral on USD/CAD.

The problems in the US economy are felt in Canada, which in turn may cut the rates.On the other hand, some monetary stimulus from Ben Bernanke might boost commodity prices and the loonie with it. The forces are balanced at the moment.

Further reading:

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