USD/CAD Weekly Forecast: Has the pandemic market factor returned?
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Subscribe to Premium- US dollar revives on Friday with modest safety-trade and profit-taking.
- Markets fear that the Delta variant could impact economic growth.
- American payrolls could give the dollar additional support on Friday.
- FXStreet Forecast Poll is uniformly bearish.
The USD/CAD staged a modest recovery from two days of Federal Reserve weakness as markets began to assess the economic damage from the Delta variant of the coronavirus.
After falling in six of eight sessions following the five-month high of 1.2807 on July 19, the USD/CAD rebounded on Friday from support at 1.2450, closing at 1.2477. The day’s low at 1.2422 was the weakest for the pair since 1.2303 on July 6.
Australia, Japan and the Philippines have instituted social restrictions of varying extent, though the incidence of the virus is low and all three have lagged in vaccination rates.
It seems doubtful that the United States, the United Kingdom and Europe, which have been much more successful at inoculating their populations, will follow suit. Nevertheless, even a minor decline in economic activity could impact the still tentative global recovery, commodity prices and the fragile manufacturing supply chain.
In its meeting on Wednesday, the Federal Open Market Committee (FOMC) statement acknowledged that the US economy has made “progress” toward its goals but limned no schedule for a change in monetary policy. Consequently, the speculative date for a reduction in the Fed’s bond purchase program receded toward year-end or later.
In his press conference, Chair Jerome Powell was equally recitient about future policy, leaving markets largely without direction until the next Fed meeting on September 21-22.
Mr. Powell said that the withdrawal of monetary support has become an active topic among the governors. He noted the US job market still had “some ground to cover” before the bank would begin the reduction of the $120-billion-a-month purchases of Treasury and mortgage-backed securities.
Commodity prices have yet to evince any noticeable effect from the Delta variant. The Bloomberg Commodity Index closed at 96.28 on Friday, up 22.4% on the year though it did fall slightly on Friday.
Bloomberg/MarketWatch
Likewise, West Texas Intermediate (WTI), the North American crude oil pricing standard, is higher by 54.7% this year and rose 2% on the week.
Treasury yields in the US were slightly lower on the week, reflecting the lack of a counter view in the credit market to moderating US growth and the still active pandemic-induced labor market and supply chain problems.
On Wednesday, Canadian inflation figures for June, slightly weaker in the headline and stronger in the core, and May GDP (which was as expected) had no market effect.
In the US, Durable Goods Orders in June were weaker than forecast though the impact was mitigated by substantial positive revision in May. Second quarter GDP came in at 6.5%, well below the 8.5% forecast. The Core PCE reading for June was higher than predicted, but as the Fed has disavowed any policy impact, it made no print on the market.
The prospect of weaker commodity prices, a Delta variant exception to the global recovery and opportune profit-taking were the reasons behind Friday's fall in the Canadian dollar.
USD/CAD outlook
The technical rebound from 1.2450 support on Friday was spurred by pandemic news, but its primary motivation was profit on the 2.4% decline from the 1.2751 close on July 19 to 1.2447 on July 29.
Trading bias is modestly higher as the recovery has not reached the first Fibonacci level of the above USD/CAD drop, and US July job numbers are a looming risk. A sensible goal is 1.2600, the base of the brief head-and-shoulders pattern and the 50% Fibonacci retracement.
American and Canadian employment data should keep the market from breaking any new ground until their dual advent on Friday.
Nonfarm Payrolls are forecast to be 900,000, which would be the highest total since August 2020 and will follow June’s much better-than-expected result of 850,000.
A strong result is capable of giving the dollar a boost and relieving some of the disappointment from the second quarter GDP miss at 6.5%. Purchasing Managers Indexes for the service and manufacturing sectors in July could, if better than expected, also revive some of the economic optimism lost to GDP.
Canada statistics July 26–July 30
US statistics July 26–July 30
Canada statistics August 2–August 6
FXStreet
US statistics August 2–August 6
FXStreet
USD/CAD technical outlook
The two-week decline has left two of three momentum indicators in the negative. The MACD is a sale, and the True Range dipped on Friday despite the small USD/CAD recovery. The Relative Strength Index (RSI) has been falling since July 19 and touched neutral at the end of the week.
Friday's rebound from 1.2450 has not reached the first Fibonacci level (23.6%) at 1.2518 and the 50% line is a likely goal for the week before Friday's US payroll report. The breach of the June 3 rising channel gave Thursday's drop extra energy, but the break is not conclusive given Friday's return.
The 21-day moving average (MA) at 1.2523 coincides with the 23.6 Fibonacci level, and the 200-day MA equals the 50% line, giving both levels greater draw.
Resistance: 1.2515, 1.2570, 1.2600, 1.2640, 1.2680
Support: 1.2450, 1.2400, 1.2340, 1.2315, 1.2275
FXStreet Forecast Poll
The break of the rising channel this week dominates the forecast. Technically, it is an important development, though, given the fundamental picture, it cannot be considered conclusive.
- US dollar revives on Friday with modest safety-trade and profit-taking.
- Markets fear that the Delta variant could impact economic growth.
- American payrolls could give the dollar additional support on Friday.
- FXStreet Forecast Poll is uniformly bearish.
The USD/CAD staged a modest recovery from two days of Federal Reserve weakness as markets began to assess the economic damage from the Delta variant of the coronavirus.
After falling in six of eight sessions following the five-month high of 1.2807 on July 19, the USD/CAD rebounded on Friday from support at 1.2450, closing at 1.2477. The day’s low at 1.2422 was the weakest for the pair since 1.2303 on July 6.
Australia, Japan and the Philippines have instituted social restrictions of varying extent, though the incidence of the virus is low and all three have lagged in vaccination rates.
It seems doubtful that the United States, the United Kingdom and Europe, which have been much more successful at inoculating their populations, will follow suit. Nevertheless, even a minor decline in economic activity could impact the still tentative global recovery, commodity prices and the fragile manufacturing supply chain.
In its meeting on Wednesday, the Federal Open Market Committee (FOMC) statement acknowledged that the US economy has made “progress” toward its goals but limned no schedule for a change in monetary policy. Consequently, the speculative date for a reduction in the Fed’s bond purchase program receded toward year-end or later.
In his press conference, Chair Jerome Powell was equally recitient about future policy, leaving markets largely without direction until the next Fed meeting on September 21-22.
Mr. Powell said that the withdrawal of monetary support has become an active topic among the governors. He noted the US job market still had “some ground to cover” before the bank would begin the reduction of the $120-billion-a-month purchases of Treasury and mortgage-backed securities.
Commodity prices have yet to evince any noticeable effect from the Delta variant. The Bloomberg Commodity Index closed at 96.28 on Friday, up 22.4% on the year though it did fall slightly on Friday.
Bloomberg/MarketWatch
Likewise, West Texas Intermediate (WTI), the North American crude oil pricing standard, is higher by 54.7% this year and rose 2% on the week.
Treasury yields in the US were slightly lower on the week, reflecting the lack of a counter view in the credit market to moderating US growth and the still active pandemic-induced labor market and supply chain problems.
On Wednesday, Canadian inflation figures for June, slightly weaker in the headline and stronger in the core, and May GDP (which was as expected) had no market effect.
In the US, Durable Goods Orders in June were weaker than forecast though the impact was mitigated by substantial positive revision in May. Second quarter GDP came in at 6.5%, well below the 8.5% forecast. The Core PCE reading for June was higher than predicted, but as the Fed has disavowed any policy impact, it made no print on the market.
The prospect of weaker commodity prices, a Delta variant exception to the global recovery and opportune profit-taking were the reasons behind Friday's fall in the Canadian dollar.
USD/CAD outlook
The technical rebound from 1.2450 support on Friday was spurred by pandemic news, but its primary motivation was profit on the 2.4% decline from the 1.2751 close on July 19 to 1.2447 on July 29.
Trading bias is modestly higher as the recovery has not reached the first Fibonacci level of the above USD/CAD drop, and US July job numbers are a looming risk. A sensible goal is 1.2600, the base of the brief head-and-shoulders pattern and the 50% Fibonacci retracement.
American and Canadian employment data should keep the market from breaking any new ground until their dual advent on Friday.
Nonfarm Payrolls are forecast to be 900,000, which would be the highest total since August 2020 and will follow June’s much better-than-expected result of 850,000.
A strong result is capable of giving the dollar a boost and relieving some of the disappointment from the second quarter GDP miss at 6.5%. Purchasing Managers Indexes for the service and manufacturing sectors in July could, if better than expected, also revive some of the economic optimism lost to GDP.
Canada statistics July 26–July 30
US statistics July 26–July 30
Canada statistics August 2–August 6
FXStreet
US statistics August 2–August 6
FXStreet
USD/CAD technical outlook
The two-week decline has left two of three momentum indicators in the negative. The MACD is a sale, and the True Range dipped on Friday despite the small USD/CAD recovery. The Relative Strength Index (RSI) has been falling since July 19 and touched neutral at the end of the week.
Friday's rebound from 1.2450 has not reached the first Fibonacci level (23.6%) at 1.2518 and the 50% line is a likely goal for the week before Friday's US payroll report. The breach of the June 3 rising channel gave Thursday's drop extra energy, but the break is not conclusive given Friday's return.
The 21-day moving average (MA) at 1.2523 coincides with the 23.6 Fibonacci level, and the 200-day MA equals the 50% line, giving both levels greater draw.
Resistance: 1.2515, 1.2570, 1.2600, 1.2640, 1.2680
Support: 1.2450, 1.2400, 1.2340, 1.2315, 1.2275
FXStreet Forecast Poll
The break of the rising channel this week dominates the forecast. Technically, it is an important development, though, given the fundamental picture, it cannot be considered conclusive.
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