USD/CAD Forecast: Key upside levels compromised, GDP in the limelight

Mixed data, crude cannot help CAD

Canadian retail sales badly disappointed with a massive drop of 0.8% in December, far worse than execpted. The USD/CAD jumped to new highs in the immediate aftermath. On the other hand, inflation is picking up in canada, with CPI standing at 1.7% YoY and rising by 0.7% MoM. 

The Canadian dollar lost ground despite a rise in oil prices. WTI Crude Oil advanced towards $63.00 as inventory data showed a signifcant drawdown of oil barrels. 

In the US, the hawkish FOMC Minutes kept the US Dollar bid and pushed the pair higher. The Federal Reserve drew a relatively rosy picture of the US economy, pointing to higher growth and expressing somewhat more confidence about inflation. US yields advanced and USD/CAD followed suit.

The upcoming week in Canada features economic indicators on Wednesday and on Thursday, but the most important publication is on Friday, with the release of Canada's GDP. The nation is unique in publishing its growth figures on a monthly basis. This time, we will get the figures for December, the last month of Q4 and the full year, making the publication more significant than usual.

Here are the upcoming events that will move the Canadian dollar as they appear on the forex calendar:

US events: Powell's first testimony and top-tier figures

A busy week awaits markets. Fed Chair Jerome Powell will face lawmakers for this first time on Tuesday. His views on monetary policy are not that clear and in the long session he will have the opportunity to discuss inflation, growth, and perhaps rate hikes. Markets are still trying to figure out if he is a hawk or a dove. The event will likely draw a lot of attention.

In addition, durable goods orders on Tuesday, GDP on Wednesday, and the Fed's favorite inflation rmeasure on Thursday, the Core PCE, all promise a lot of action. Friday does not feature any US events, leaving the stage for Canada's GDP.

Here are the critical American events from the economic calendar:

USD/CAD Technical Analysis - breaking higher

The technical picture for the USD/CAD is clearly higher. The pair broke above the long-term downtrend resistance line and also the 200-day Simple Moving Average, a closely watched indicator. Moreover, the RSI points higher, above 50 points but not in overbought territory just yet. Momentum remains to tehe upside.

$1.2770 is the immediate lien of resistance after capping the pair in the past week. Further above, the all-important triple-top of $1.2920 is the next big line ahead of the round $1.300 level. 

Looking down, the $1.2590 high of early January is the next cushion. It is followed by $1.2450 that was a swing-low in February before the 2018 trough of $.12250.

Where next for USD/CAD?

The Canadian dollar remains vulenrable, both technically and fundamentally. Despite higher inflation, the economy is slowing down and we may get a reminder of this now. In addtion, the failure of the loonie to take advantage of higher oil prices also points to weakness of the Canadian dollar, an upside potential for the USD/CAD.

. The FXStreet Forecast Poll shows a neutral tendency on the pair, contrary to the bullish sentiment expressed here.