USD/CAD Forecast: After the correction, jobs to set the tone

  • The Canadian Dollar had a stable week for a change, correcting some of its gains.
  • Canada's jobs report and trade will impact the loonie in the upcoming week.
  • The pair is out of overbought territory and looks bullish yet the FX Poll shows a bearish sentiment in the longer terms.

This was the week: Some stability

After the Canadian Dollar lost a lot of ground on trade worries, it managed to stabilize. Canadian GDP came out at +0.1% in April, better than had been expected. More importantly, US President Donald Trump softened his stance on trade and this helped markets cool down. There were no new clashes between Canadian PM Justin Trudeau and Trump.

The Canadian Dollar was temporarily weighed down by the speech from Bank of Canada Governor Stephen Poloz. He stressed the importance of trade in the upcoming rate decision. On the other hand, he remained optimistic about the economy. 

US data was OK, with a beat on the Core PCE, the Fed's favorite inflation figure, but a downgrade of Q1 GDP to 2%. Core Durable Goods Orders missed expectations but they were supported by upward revisions.

All in all, the end of the quarter provided some much-needed calm after the free fall.

Canadian events: Jobs report stands out, watch trade as usual

After Canadian celebrate Canada Day over the weekend, the first event to watch is Markit's Manufacturing PMI, which showed growth in May.

Yet the key event is undoubtedly the jobs report. After a second consecutive month of job losses in May, the report for June is expected to show a bounce. A third fall in a row would be detrimental to the loonie. The unemployment rate is projected to remain unchanged at 5.8% while wages could also play a role after they increased to 3.9% YoY in May.

In addition, Canada is forecast to report a trade deficit once again while the Ivey PMI carries expectations of remaining strong above 60. 

Another topic to watch is the US tariffs on China which will come into effect on Friday, July 6th. If a last-minute deal is reached, markets could cheer and the Canadian Dollar could rally. However, as things stand now, the tariffs will be another shot in the trade war and the loonie could struggle. A retaliation by China is on the cards.

Here is the Canadian calendar for this week.

US events: FOMC minutes, full NFP buildup

The US also celebrates its Independence Day on Wednesday, July 4th, but otherwise, the calendar is very busy. The first hint to the Non-Farm Payrolls comes on Monday with the ISM Manufacturing PMI. The Non-Manufacturing version is due on Thursday. Both figures have been quite strong of late. The ADP private sector jobs report is scheduled for Thursday due to the holiday and will also serve as a warm-up to Friday's big event.

The Non-Farm Payrolls report is projected to show slightly slower growth in jobs, but a repeat of the solid increase in wages: 0.3% MoM and 2.7% YoY. Wages tend to carry more weight. 

Before the NFP, we will get the FOMC Meeting Minutes. The document is due to shed light on the hawkish hike made by the Fed in June. They signaled two additional rate hikes in 2018 and also sent an optimistic message about the economy. It will be interesting to see if they reiterate the optimism or if, on the other hand, they raise concern about global trade. The topic received minimal attention in Powell's press conference. 

Here are the critical American events from the forex calendar

American economic calendar July 2 6 2018 forex

USD/CAD Technical Analysis - Out of oversold territory

The Relative Strength Index shows that the pair is back under 70, thus outside overbought territory it had been at earlier. In addition, Momentum remains positive and the pair is trading above both the 50-day Simple Moving Average and the 200-day SMA. The bias remains bullish.

Some resistance awaits at 1.3210 which capped the pair on June 15th and also played a role in 2017. More significant resistance is at 1.3245 that provided support to the pair in late June, when it traded on higher ground. 1.3350 was the peak on June 28th and also had a role last year. 1.3380 is the 2018 peak.

On the downside, 1.3165 held the pair from falling on its way up in late June. 1.3125 was the peak back in March. 1.3050 capped the pair in late May and early June. Further down, the round 1.3000 level remains significant. 

USD CAD daily chart technical analysis July 2 6 2018

USD/CAD Sentiment Poll

The FXStreet forex poll of experts shows a neutral stance in the upcoming week and a bearish one later one. Positioning has not materially changed over the past week. It is important to note that also for the longer term, there is quite a divergence and a lot of uncertainty.

Canadian Dollar forex sentiment poll July 2 6 2018

Where next for USD/CAD?

The recent slide looks only like a correction. The trade situation remains fragile and the charts point to further upside. Unless the jobs report is amazing and Trump softens his position, there is room for more rises.

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