Mario Blascak, PhD
Independent Analyst
- The Canadian Dollar benefitted from above inflation rising above expectations in July, while trapped in the triangle.
- The retail sales report headlines the fourth week of August as central bankers gather in a symposium in Jackson Hole, Wyoming.
- FXStreet Forecast Poll showed the incredibly accurate prediction last week missing USD/CAD by 4 pips only and the forecast error of only 0.03%.
The third week of August saw Canadian Dollar strengthening against the US Dollar thanks to above expectations strong inflation reported on Friday. The third week of August saw Canadian Dollar strengthening from Monday’s open level of C$.3120 to C$1.3050, just to reverse swiftly back to C$1.3170 level on Thursday and Friday. While US Dollar traded at above C$1.3120 level to the Canadian counterpart before the July inflation data for Canada, it fell all the way to C$1.3069 after headline inflation rose 3.0% over the year in July, up from 2.5% y/y in June.
The core Bank of Canada inflation measure also accelerated strongly in July jumping up 1.6% y/y in July from 1.3% y/y in June.
While slow progress on NAFTA talks between the US and Mexico progressed giving much hope for Canada to return to the spotlight was pushing the Canadian Dollar higher, the liquidity crisis on emerging markets that squeezed Turkish Lira contributed to the general Risk-off market sentiment with US Dollar among main beneficiaries.
With Canadian retail sales report the only macro headline in the forthcoming week and the world’s most important central bankers gathering in Jackson Hole, Wyoming for the US Federal Reserve hosted symposium, the market sentiment is set to move the USD/CAD with US Dollar set for retracement across the board after recent multi-month highs.
The Canadian data set had little effect on the forex market with USD/CAD trading within a narrow band of C$1.3050-C$1.3170. Moreover, technically the USD/CAD is trapped within the flat level triangle with C$1.3120 serving as resistance representing 61.8% Fibonacci retracement of the grand slide in USD/CAD from C$1.3800 to C$1.2040 back in autumn last year.
Canadian inflation since 2014
Source Statistics Canada, Chart FXStreet
Technical Analysis
USD/CAD daily chart
The USD/CAD is trapped in the leveled triangle bordered by the long-term uptrend in the US Dollar from C$1.22000 to C$1.3400 level with trend tracking the prices back to March this year. On the upside, the upper boundary of the triangle is formed by descending highs from June 27 and July 20 this year. The lines are set to peak at C$1.3110 in a few days from now, so the break to either side is expected. While break on the upside is a part of the longer-term trend lasting since March this year and it is supported by a greater macro picture of Canada not getting any NAFTA deal from the US yet, the flip side of the story sees Slow Stochastics elevated close to the Overbought territory with slight decline further towards C$1.3000 generating a sell signal on USD/CAD. While target on the downside is clearly C$1.3000 before tracking cyclical swing low at C$1.2965 and then C$1.2910 representing 50% Fibonacci retracement of the above-mentioned fall in the US Dollar from 2017.
Economic fundamentals in the fourth week of August
Canada’s economic calendar features only retail sales report and central bankers speeches for the fourth week of August. While Canadian retail sales are expected to rise 1.1% m/m in June after rising 2.0% in May, core retail sales are seen decelerating to 0.7% m/m in June.
In terms of Bank of Canada officials speaking, senior Deputy Governor Carolyn Wilkins is set to speak at the panel discussion at the ECB event in Frankfurt on Tuesday, while the Bank of Canada Governor Stephen Poloz is scheduled to participate in Jackson Hole symposium.
Canada’s economic calendar for August 20-24
On the other side of the Atlantic, the fourth week of August is set to deliver FOMC meeting minutes and the speeches from various central bankers worldwide at the Jackson Hole symposium in Wyoming with the US Federal Reserve Chairman Jerome Powell speaking on Friday next week.
On the data front, the US housing market data are due and the US durable goods orders report due next Friday with core orders up 0.3% m/m in July.
US economic calendar for August 20-24
FXStreet Forecast Poll
The FXStreet Forecast Poll for USD/CAD in the week ahead turned bullish with C$1.3136 exchange rate estimated in one week time from now. Last week FXStreet forecasters projected C$1.3087 by this Friday and the forecasters missed actually by 4 pips only, which represents the forecast error of 0.03% Once again fantastic result even for the short-term prediction.
While bullish versus bearish predictions distributed 69% of bullish versus 31% of bearish predictions among forecasters participating at the FXStreet Forecast Poll this week, the last forecast bull-to-bear distribution was more even with 46%-to-36%.
Even for 1-month and 3-months ahead, the FXStreet Forecast Poll turned a bit more bullish with 1.3155 expected in 1-month time and 1.3108 predicted for 3-months time from now.
Related Forecasts
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