Technically, USD/CAD continues to trade in a short term downtrend channel with most technical indicators and moving averages indicating a potential bullish channel breakout likely in the US session ahead. On the daily charts, the pair attempted to breach the channel resistance beyond 1.2200 levels in the first half of the week, only to face rejection and fall back on the 1.21 handle. In today’s trade in running, the pair is seen consolidating around 1.22 barrier and awaits fresh incentives in form of the upcoming US macro releases tp be published in the American session for further momentum. USD/CAD finds good support at 5-DMA located at 1.2155 and a strong channel trend line resistance holds at 1.2215.
It is anticipated that a host of upbeat US macro releases due later today will drive the pair above 1.2215 levels, displaying a bullish channel breakout. Subsequently, USD bulls will take over pushing the loonie to 1.2280 levels where the 50-DMA lie. In case the US data misses estimates or comes in line with estimates, then we could see a major pull back in USD/CAD knocking-off the pair to test 5-DMA support. Selling pressure may intensify below a break of the last drowning the pair to 1.21 handle.
Today we have a busy North American calendar, kicking-off with US weekly jobless claims followed by flash manufacturing PMI, existing home sales and Philly fed manufacturing index. Almost all the data from the US scheduled for release later today are expected to come in better than the previous readings.
The weekly jobless claims are expected to show a mixed picture with the initial claims to have increased to 271k in the week ended May 15, against a 264k reading seen in the previous week. While existing home sales are expected to have risen to 5.23 million, which would be a further step in the right direction after sales advanced sharply in March and approached the cyclical highs from mid-2013. The manufacturing PMIs are also likely to show a rebound with the Philly Fed gauge rising for the second straight month in May with an expected reading of 8.1 against 7.5 recorded in April.
Moreover, US crude oil prices have more or less stabilized below $ 60 mark on the back of the third weekly drop in US crude stock piles. US crude stockpiles fell by 2.67 million barrels in the week to May 15, marking the third consecutive decline, the Department of Energy showed on Wednesday, exceeding the 2 million barrel fall that the market had expected. The week before, inventories had declined by 2.191 million barrels. However, the upside in the black gold seems limited as the US dollar is anticipated to make a solid comeback post the data flow from the US.
To conclude:
USD/CAD may give a bullish channel breakout on upbeat US data to be reported alter today
The pair is likely to test 50-DMA located at 1.2280 on a convincing break above 1.2215 resistance
To the downside, 5-DMA at 1.2155 is expected to act as a major support below which floors would open for a retest of 1.21 handle
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