USD/CAD forecast: FOMC minutes next potential catlyst to break ice on 1.35 handle

• USD/CAD traded between 1.3401 - 1.3513.
• Higher lows with bearish leaning stochastics leave the technical picture neutral.

This was the week: All eyes were on trade and geopolitics

USD/CAD traded between 1.3401 - 1.3513 week commencing 13th March as prices creep a touch higher for a third consecutive week, yet again printing higher lows. USD/CAD could be quite a bit higher if it wasn't for such CAD supporting factors as positive progress on USMCA, higher WTI and stronger economic reports. Tensions in the Middle East have propped up oil prices whereby recent escalations in the Iran file follows the US Administration's "maximum pressure" campaign. In addition, ongoing turmoil in Venezuela and Libya continue to fan the flames of risk sentiment over global supply. Lastly, the news that the US is removing steel and aluminium tariffs on its USMCA partners has been a CAD supporting factor also. The USD/CAD pair ended the week around 1.3460 and the outlook for medium-term USD/CAD has not changed. The pair is likely to trade between a range of 1.3100/1.4000 for the year - (Although the balance of risks implies that the pair will spend the majority of its time this year in a narrower 1.31-1.38 range).

Key CAD events:

• Headline Inflation in Canada ticked back up to 2% in April compared to being down at 1.4% back in January. "Despite the potential for some better news on inflation over the coming months, we don’t expect to see the BoC budging from its current stance. That said, the gradual recovery in growth and inflation indicates that a rate cut is also unlikely this year," analysts at ING Bank argued.

For the week ahead, Retail Sales will be in focus. "Higher gasoline prices and auto sales should provide the main drivers behind a 1.4% increase in April retail sales, along with a more modest pickup in the core series. Volumes should underperform the headline print with a 0.8% advance which would leave them flat for Q1 after a weak Jan/Feb, although this will provide a solid handoff to Q2," analysts at TD Securities explained. 

Key U.S. events:

•  U.S. Retail Sales were a disappointment with the headline spending figure dipping by 0.2%. However, this latest decline comes after a very strong month for consumer spending in March.

For the week ahead, U.S. Durable Goods will be up first while Chair Powell then speaks on Monday evening, with voters Evans, Rosengren and Bullard to follow. FOMC minutes will be next in focus. "The trade standoff likely has inched up Fed officials' downside risks, but not to the point that comments this week will support market pricing for outright rate cuts. The May FOMC minutes on Wednesday should show a cautious Fed with a majority expecting transitory low inflation," analysts at TD Securities explained.

USD/CAD technical analysis

The technical picture is solid with the price still moving higher in a bullish channel. Eyes stay on the 78.6% Fibo confluence of the 24th April highs which bring in the case for an extension to the ascending channel's resistance at the 127.20% Fibo extensions of the range located at 1.3820. In the near term, the lower highs favour the upside. However, bulls have failed to break up much beyond 1.35 the figure on on a number of occasions and stochastics lean bearish, so there is a bearish argument for a test of the 38.2% Fibo, a touch below 1.33 the figure. A break below the 38.2% Fibo will bring in the 23.6% Fibo and trendline support (and 200-D SMA) where a break out opens risk back to 1.3070 support and 1.2780 below there.

USD/CAD Forecast Poll

The FXStreet forex poll of experts is a sentiment tool that highlights near- and medium-term price expectations from leading market experts and it shows a bullish bias near term turning bearish over time.