USD/CAD Forecast: Crude reality for CAD

This was the week: US Mid-Terms, and US oil output

The US Mid-Term elections did not surprise pollsters: Democrats won control of the House while Republicans retained the Senate. Despite some dramatic moves during election night, currency markets returned to their normal behavior and well-known ranges once the dust settled. 

Bank of Canada Stephen Poloz conveyed an optimistic message in his speech. The BOC remains on course to raise rates in early 2019. His speeches have a diminishing positive effect on the loonie. The Federal Reserve left its interest rate unchanged as expected and left the door wide open to a hike in December. 

The Ivey PMI bounced back above 60 points in October after a downfall in September. The new trade deal, the USMCA, brought optimism back to Canadian businesses.

However, the C$ faced the crude reality of crude oil prices. US inventory data not only showed a big buildup in oil, 5.8 million barrels but also record US production, 11.6 million barrels per day. Canadian petrol is already sold at a considerable discount in comparison to American oil. The rise in American output sent all oil prices lower, and the C$ was hamstrung. 

Late in the week, US and Canadian negotiators had a spat about some details in the USMCA agreement. While most analysts think the minor details can be ironed out, markets thought the deal was done and any disagreement is a cause for worry. Canada is dependent on American demand. 

Canadian events: Light calendar, low oil price

Once again, there are very few figures of importance in the Canadian economic calendar. The ADP Non-Farm Payrolls report for October comes out nearly two weeks after the official one but is still of interest. Foreign investments in Canadian equities is also of importance.

The fluctuations in oil prices will likely have their say once again. The weekly inventory data is published on Thursday this time, due to the US and Canadian bank holidays on Monday. 

Here is the Canadian calendar for this week

US events: Consumer prices, consumption, and politics 

After a week that included elections and a Fed decision, the US calendar still contains two top-tier events that can rock markets. The inflation report on Wednesday is set to show that Core CPI, the most critical data point, is unchanged at 2.2%. The Fed has no incentive to accelerate rate hikes if underlying inflation remains tame. Headline CPI could slightly pick up.

Thursday sees the Retail Sales report. The American economy is centered on consumption and expectations are high for October. September's numbers were mixed, but the Retail Sales Control Group came out at a robust 0.5%. It is important to note that revisions are quite common in this publication. 

Politics are not going away after the Mid-Terms. The Mueller investigation has been quiet ahead of the vote, but fresh indictments may be seen now. The Special Counsel may be in danger now after Trump fired Attorney General Jeff Sessions. If the White Hosue is preoccupied with defending the President, markets could struggle. 

Here are the critical American events from the forex calendar: 

USD/CAD Technical Analysis

The USD/CAD continue trading alongside the uptrend channel and also above both the 50-day and the 200-day Simple Moving Averages. Momentum remains to the upside and the Relative Strength Index is still not reflecting overbought conditions (70). All in all, the bias is bullish.

1.3225 capped the pair in early September. 1.3295 was a high point in July and serves as resistance. 1.3350 was a high point in June and defends the all-important peak of 1.3380. Further above, 1.3480 is notable. 

1.3175 held the pair down in late October and also in mid-August. 1.3050 was a swing low in early November. Below the round number of 1.3000, we find 1.2970 which was both a low point in mid-October and a support line in both August and September. 1.2920 was a cushion in early October and 1.2880 was a double bottom during the summer. 

USD/CAD Sentiment

The FXStreet forex poll of experts shows a bullish tendency in the upcoming week and a bearish one afterward. However, it is important to note that the price targets are all within the 1.31 handle. The average targets have not changed much since the previous forecast.

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