USDCAD: Will BoC Bring a Break of the 1.13 Barrier?

The USDCAD has already kicked off a massive day for economic data with a bang. At 8:30 ET (12:30 GMT), traders were hit with major simultaneous data releases from both sides of the 49th parallel. In the US, the September Consumer Price Index (CPI) printed at 0.1% m/m, beating expectations of a flat reading, though the Core CPI reading, which filters out volatile energy and food prices, missed expectations at 0.1% m/m vs. 0.2% eyed. On a year-over-year basis, both measures remained steady at 1.7%, indicating minimal price pressures in the world’s largest economy and providing no immediate catalyst for the Federal Reserve to consider raising rates.

Perhaps more importantly for USDCAD, traders also got their first look at August’s Canadian Retail Sales reading, which was unequivically disappointing. The measure contracted by 0.3% on a both a headline and core basis, compared to expectations of a 0.1% and 0.2% rise, respectively. This weak reading on the Canadian economy sets the tone heading into the Bank of Canada (BoC) meeting later today. While the Bank will almost certainly leave monetary policy unchanged, there is some speculation that it may drop its forward guidance policy, introducing more uncertainty to the markets. Beyond the potential removal of forward guidance, traders will also comb the accompanying monetary policy statement and ensuing press conference from BOC head Poloz for clues about the central bank’s expectations for the Canadian economy moving forward, especially given the recent precipitous drop in oil prices.

Technical View: USDCAD

Turning our attention to the charts, USDCAD has been struggling to break conclusively above its 5-year high in the 1.1275-1.1300 area for over a week now. The pair did briefly reach the measured move target of its inverted Head-and-Shoulders pattern at 1.1360 last week, so that bullish technical tailwind is now out of play.

That said, the pair is holding above 1-month bullish trend line support near 1.1200 as we go to press, and as long as that level holds, the outlook remains neutral at worst. Meanwhile, the MACD indicator is stalling out, but still well above the “0” level, showing bullish momentum, while the RSI indicator remains solidly within bullish territory (>40).

Today’s BOC statement may set the tone for the rest of the week. If the central bank is strikes an optimistic note, USDCAD could break short-term bullish trend line support and continue down toward 50-day MA support below 1.1100. On the other hand, a more downbeat economic outlook could finally take the pair to a new 5-year high above the key 1.1275-1.1300 resistance zone and expose 1.1400 or 1.1500 heading into November.