USD/CAD Forecast March 20-24

The Canadian reversed directions last week and gained 140 points. USD/CAD closed the week at 1.3318. This week’s key events are CPI and Retail Sales. Here is an outlook on the major market- movers and an updated technical analysis for USD/CAD.

Last week’s highlight was the Fed’s rate hike, raising rates to the 0.75%-1.00% range. This led to broad losses by the US dollar (here are 5 reasons why the dollar dropped). Consumer inflation and retail sales were soft but within expectations. In Canada, Manufacturing Sales posted a gain of 0.6%, compared to a gain of 2.3% a month earlier.

Updates:

Mar 20, 0:20: The week ahead: Fed hangover, durables, and Brexit speculation [Video]: The Fed decision, as well as the other ones, will continue reverberating in markets for a while. A lighter calendar...

USD/CAD daily graph with support and resistance lines on it.

1. Wholesale Sales: Monday, 12:30. The indicator improved to 0.7% in December, above the forecast of 0.4%. The markets are braced for a softer reading in January, with an estimate of 0.3%.

2. Core Retail Sales: Tuesday, 12:30. This indicator excludes the most volatile items which comprise Retail Sales. The indicator declined in December, well short of the forecast of 0.8%. Will we see a rebound in January?

3. Retail Sales: Tuesday, 12:30. The indicator was unexpectedly soft in December, declining 0.5%. This fell short of the forecast of 0.1%.

4. BoC Deputy Governor Lawrence Schembri Speech: Wednesday, 19:45. Schembri will speak at an event in Vancouver. A speech that is more hawkish than expected is bullish for the Canadian dollar.

5. Annual Budget Release: Wednesday, 20:00. Canada will release its annual budget. The budget will outline the government’s projected borrowing and spending levels.

6. CPI: Friday, 12:30. CPI is the primary gauge of consumer inflation. The index rebounded in January with a strong gain of 0.9%, easily beating the forecast of 0.3%. Will CPI follow with another gain in February?

7. Common CPI: Friday, 12:30. This index was first released in December 2016. The indicator has been steady and edged down to 1.3% in January.

8. Median CPI: Friday, 12:30. This indicator showed little movement in January, dipping to 1.9%.

9. Trimmed CPI: Friday, 12:30. This index edged up to 1.7%, after two straight readings at 1.6%.

 

USD/CAD Technical Analysis

USD/CAD opened the week at 1.3460 and climbed to a high of 1.3496, as resistance held at 1.3457 (discussed last week). The pair then reversed directions and dropped to a low of 1.3275. USD/CAD closed the week at 1.3318.

 

Technical lines, from top to bottom

1.3782 has held in resistance since the start of February.

1.3648 was an important support level in February.

1.3551 is the next line of resistance. This line held early in the week as the pair posted gains before retracting.

1.3457 has some breathing room following sharp losses by USD/CAD. This line was a high point in September 2015.

1.3351 is a weak resistance line.

1.3212 is providing support. It is a cap in the second quarter of 2016.

1.3124 is the next support level.

1.3003 is protecting the symbolic 1.30 level.

1.2908 is the final support level for now.

 

I am bullish on USD/CAD

The US economy remains strong, buoyed by strong employment and consumer confidence numbers. The Fed move last week is likely is likely to be repeated two or three more times this year, so sentiment for the greenback should remain positive.