USD/CAD Forecast: Tentative turnaround to the downside, GDP awaited

• The USD/CAD made a sharp turnaround to the downside on the Fed, Oil, inflation, and trade.
• The week ahead is light in Canada, but GDP stands out.
• The technical picture is changing towards the downside, but the loonie is not out of the woods just yet.

Everything looks much better for the C$

The USD/CAD had already reached 1.3125, the highest level in nearly nine months as trade fears, sliding oil and a dovish speech from Poloz weighed heavily on the Canadian dollar. 

So why did it turn around?

1) Rising Oil Prices: The price of the black gold advanced quite nicely with WTI Crude Oil topping the $65 level. A drop in private and then official inventories sent the price higher. A weaker US Dollar also gave the loonie a boost. 

2) Dovish Fed hike: Fed Chair Jerome Powell oversaw a rate hike in his first meeting as Fed Chair, but that was entirely priced in. The FOMC did refrain from changing the dot-plot to a total of four hikes in 2018 and Powell said he was surprised by the slow rise in wages. Moreover, in answer to a question, he said that businesses are expressing concern about the trade.

3) Trump trade wars now pointed at China: The Trump Administration officially exempted Canada from the steel and aluminum tariffs, something that was not a surprise. However, the announcement about duties and perhaps sanctions related to Intellectual Property (IP) on China moved the rise away from Canada. Also, the US removed its previous demand to have a minimum of 50% American content in NAFTA approved cars. This is all good news for the Canadian Dollar.

4) Higher Canadian Inflation: After the Bank of Canada said that the economy could grow further without creating inflation, the outcome for February was above expectations: 0.6% MoM and 2.2% YoY. Core CPI also surprised to the upside, and so did the additional core measures published by the BOC. Poloz and co. may have to change their minds sooner than later.

All in all, these are all positive developments for the C$ and negative for the USD/CAD. However, all of them may prove temporary: Oil price may reverse on the next report, Fed expectations may change on upbeat data, trade remains very vulnerable, and also inflation is elusive all over the developed world.

Canadian events: GDP and also Oil

The week leading into Easter is light on events. On Thursday, Canada will release its Gross Domestic Product for January, the first look into 2018. The publication will be accompanied by the Raw Materials Price Index and the Industrial Product Price. After the recent ascent in Oil, the weekly Inventories release is also becoming important. 

Here are the upcoming events that will move the Canadian dollar as they appear on the forex calendar:

US events: Final GDP, Fed's favorite inflation measure

While trade talk will continue dominating the US Dollar and the headlines, there are a few interesting events on the US calendar. On Wednesday, the final GDP read for Q4 2017 is projected to show a growth rate of 2.6%, a small upgrade to 2.5% reported in the second release. The first quarter of 2018 may be weaker according to some estimates.

On Thursday, the US releases a significant bulk of data, and the Core PCE Price Index will stand out. A repeat of 1.5% YoY is projected for February, mimicking the no-change outcome of the Core CPI. The Federal Reserve focuses on this figure. Personal Income, Personal Spending, and Jobless Claims are also notable just before markets slow down ahead of Good Friday.

Here are the critical American events from the economic calendar

USD/CAD Technical Analysis - mixed signals

As the chart shows, the RSI has moved from flirting with the oversold ground to near balanced at 50. Momentum slowed down and eventually changed direction to the downside. 

On the other hand, the 50-day Simple Moving Average is about to break above the 200-day SMA, and this is a bullish sign. More evidence is needed before a bearish trend can be established.

Support is found around C$1.2810, a low point from early March. Further below, 1.2760 was a swing low and remains essential. Another swing high from early February awaits at 1.2682. 

Looking up, the former triple-top of 1.2920 remains important. The round number of 1.3000 that the pair struggled serves as another line of resistance. Further up, 1.3050 which supported the pair when it traded on high ground and 1.3125, the new multi-month high tower above. 

Where next for USD/CAD?

Despite all the positive developments listed above, the Canadian Dollar may take a break after the recent move. Nothing is fully resolved, and another clash between the US and Canada or a drop in oil inventories can limit any moves. Perhaps we will see a week of consolidation after the recent move.

 The FXStreet Forecast Poll is mixed with a minor bearish bias on the pair, similar to the cautious opinion presented here.