Retail sales and inflation data are among the highlights of this week’s Canadian events. Here’s an outlook for the events that will shape the Canadian dollar’s trading, and an updated technical analysis for USD/CAD, now in lower ground.
USD/CAD daily chart with support and resistance lines on it. Click to enlarge
The US dollar retreated on the speculation that one more trillion dollars will be allocated for Quantitative Easing. The Canadian dollar enjoyed this, similar to other currencies. Will the pair advance to parity? Let’s start:
- Foreign Securities Purchases: Monday, 12:30. The net value of purchases by foreigners serves as a gauge of confidence for the Canadian economy. Last month saw a plunge from 23 to 5.4 billion, worse than expected. This time, the value will probably be higher – 8.1 billion.
- Wholesale Sales: Monday, 12:30. This indicator gives us a view at the back end of the economy – the wholesalers. Last month’s drop of 0.3% was far worse than a rise of 0.4% that was expected, and weighed very heavily on the loonie. A +0.6% correction is expected this time and should push currency higher.
- CPI: Tuesday, 11:00. After three rate hikes, a significant rise in inflation is needed to bring about the next move. While consumer prices surprised with a 0.5% rise last month, Core CPI dropped, signalling that the rise was temporary. CPI will probably rise now by 0.2%, but Core CPI is expected to remain unchanged. Only a significant rise above 0.5% in both of them will trigger a jump in the loonie.
- Retail Sales: Wednesday, 12:30. This important consumer indicator disappointed in the past three months and saw a squeeze. Also here, similar to wholesale sales, a correction is expected, +0.4%. Core retail sales, no less important, followed the same pattern of disappointing drops, and are also expected to recover now by 0.5%.
- Leading Index: Wednesday, 12:30. 10 economic indicators are used to build this index, with most of them already being released. Nevertheless, it usually has a strong impact. Lat month’s 0.4% rise fell short of expectations. A faster growth rate is expected now, of 0.6%.
USD/CAD Technical Analysis
USD/CAD dropped below 1.0350 at the beginning of the week and descended through the 1.0280 line (appeared in last week’s outlook) to 1.02. It then bounced back up, and a second attempt to break below 1.02 also failed. It finally closed higher, at 1.0325.
The pair currently trades between 1.0280, which was a strong support line in July, and 1.0350, which capped its gains in the past week.
Higher, 1.05 held the pair twice during August and is the next line of resistance. Above, the stubborn 1.0680 worked as resistance in July and in August, for more than one day in each round.
Above, 1.0750 was a swing high during May and also the top border of a long-term range in 2009. The last line for now is 1.0850, which was also a swing high in May.
Looking down, 1.02, which was the 2009 low, strengthened in the past week, as it served as a double-bottom. Below, 1.01 cushioned a drop in August.
The ultimate line of support is at parity, that got closer in the past week. The lines below parity are 0.98 and 0.97.
I remain bearish on USD/CAD.
Canada’s healthy economy supports a stronger currency, despite the weakness of its main trade partner – the US.
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/USD forecast.
- For the New Zealand dollar (kiwi), read the NZD/USD forecast.
- For USD/CAD (loonie), check out the Canadian dollar forecast.
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