USD/CAD forecast: Trapped between 200 and 50 DMAs in a market chop

• USD/CAD bears target a break of the 20/50 DMA confluence. 
• Central banks divergence remains a driving force, but trade wars keeping WTI and CAD on the backfoot. 

This was the week: 

The pair was caught in a chop in the past week, as bears and bulls tussle over the trade war headlines. The Loonie is at a disadvantage with the price of oil dropping and its relationship to the wider commodity complex. The Greenback was picking up on promising data releases and safe-haven flows as well. The Loonie has so far been unable to really capitalise on the central bank divergence but the Bank of Canada's, (BoC), neutral outlook should be a key topic which is so far being ignored. 

Key CAD events:

There were no releases from the CAD calendar, but the Canadian jobs growth was in focus last Friday where job creation eased while wage inflation surged. Employment declined 24K in July according to the Labour Force Survey, below the 15K increase expected by consensus. This pullback pushed the unemployment rate higher from 5.5% to 5.7% with the participation rate declining one tick at 65.6%.

Looking ahead, the Bank of Canada, (BoC), outlook will take the attention. "The BoC has been dead silent since the July MPR, leaving markets to interpret incoming data amid a dimming global outlook. While data has been surprisingly robust–Q2 GDP tracking has firmed to 3% from 2.8% in mid-July (BoC: 2.3%) – this is unlikely to placate those concerned by the recent escalation in trade tensions, suggesting a more cautious tone in September," analysts at TD Securities said. 

Key U.S. events:

It was a busier week on the calendar but the Consumer Price Index (0.1% above estimates) and Retail Sales that were the climax of events. The July retail sales report was undoubtedly strong with above-market prints for the core (+0.9% mom vs. +0.5% expected) and control group (+1.0% mom vs. +0.4% expected) components. "There was a small downward revision to the prior month; however, this was still the fifth straight monthly increase in retail sales, which underscores the solidity of consumer activity at the moment," analysts at Deutsche Bank explained. 

Next week will have more Fed speak and the Federal Open Market Committee Minutes from July as well as the Jackson Hole Sym. "Recent escalation in US/China trade talks and the tightening in financial conditions have placed the Fed in a tight spot. With its reaction function closely tied to global "crosscurrents", we expect communication though the Minutes and J. Hole symposium to attempt to clarify the path forward. While Fedspeak should support near-term easing, the market is more than priced for it," analysts at TD Securities explained. 

 

USD/CAD Technical Analysis

The price broke the 200-day moving average both ways last week in a choppy market, holding above the 50-day moving average to the downside. The daily channel is steep, too steep and the 200-DMA and 23.6% Fibo confluence may be too much for the bulls at this juncture. If price resumes back to the 38.2% on a break of the 20/50-DMA, (1.3220), a resumption of the downtrend will be back in vogue, targetting the 1.28 handle - 1.3350 is a near-term target. 

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 shows a bearish bias for the week ahead.