The USD/CAD pair fell during the week, but found enough support at the 1.30 level to turn things around and form a hammer. However, the previous candle was a shooting star, and then of course shows significant resistance. Because of this, I think the market continues to bang around in this general vicinity, as we try to figure out where to go next. A lot of this is going to be driven by the fact that oil is a fairly stagnant, so of course this makes for difficult trading in this pair.



USD/CAD Weekly Forecast February 20-24

USD/CAD traded in a tight range over the past week and remains relatively unchanged on a week over week basis. Downside support displayed resilience as yet another bearish attempt to drop below the psychological 1.3000 handle resulted in a recovery. While the strong hold of support puts the loonie at risk of a decline against the greenback, the lack of upside movement in the exchange rate provides little evidence of a turn in trend.

A meeting between President Trump and Canadian Prime Minister Trudeau on Monday confirmed that trade negotiations were not a threat to Canada. Trump stated that the focus of the NAFTA renegotiation was south of the border and that trade terms with Canada would be merely tweaked. The renegotiation had posed a risk for the Bank of Canada, resulting in a cautious tone at the January meeting where uncertainties caused the bank to leave the option to ease further on the table.

Better than expected US data on Wednesday failed to sustain a rally in the greenback as the trade-weighted index (DXY) reversed sharply shortly after the release and extended losses the next day. The consumer price index rose 0.6% in January to mark the largest gain in nearly three years. Analysts had been looking for a rise of 0.3% following a gain of 0.3% in the prior month. Retail sales rose 0.4% last month to beat the consensus for a rise of 0.1% and against a revised gain of 1.0% in the prior reading.
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Canadian December Wholesale Sales Rise 0.7%, Motor Vehicle Sales Decline

Canadian wholesale sales rose 0.7% in December following a revised 0.1% gain the previous month which was originally reported as a 0.2% gain.

This was the third consecutive monthly increase and also above consensus expectations of a 0.4% advance.

Six of the seven sectors recorded higher sales on the month and there was a year-on-year increase of 2.5% with a 1.5% gain in volume terms.

For 2016 as a whole, there was a 3.1% increase in sales from 2015 levels with a 2.2% increase in real terms as only the farm sector registered an annual decline.

Both the food and household goods sectors recorded a 0.9% increase for the month while building supplies rose 1.4% and there was a firm 2.5% gain in the machinery sector. All these sectors also recorded solid annual growth, led by a 4.6% gain for machinery.

There was, however, significant weakness in the motor vehicle and parts sector with a 2.1% decline on the month which took the annual decline to 2.8% and sales were at the lowest level since November 2015.

Wholesale inventories rose 1.1% on the month, the fifth consecutive advance, and the inventory/sales ratio rose to 1.30 from 1.29 previously. Weakness in motor vehicles sales was reflected in an increase in inventories to the highest level on record and incentives may need to be increased to shift stocks.

The data overall suggests solid growth and there will be optimism surrounding trends in the economy, especially with growth in machinery sales which suggests a firm investment trend.
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USD/CAD Holds Near Range Resistance Despite Break in Oil Prices

Volatility slowed in the currency markets as US banks were off in observance of President’s day. USD/CAD remains relatively unchanged from Friday’s close as the pair holds near resistance from a range that played out last week.

The currency pair posted a small gain in early European trading, briefly trading above range resistance but turned lower in the North American session. Canadian data came in better than expected but did not have much of an impact on the currency pair.

Canadian wholesale sales rose 0.7% in December with higher sales in six of the seven sectors. The gain was ahead of analyst expectations for a rise of 0.4% and against a revised gain of 0.1% in the prior month.

On the economic calendar for Tuesday, Fed members Kashkari and Harker are scheduled to speak. The tone of the Fed members will be important following Fed chair Yellen’s hawkish testimony to Congress last week that resulted in an increase in rate hike probabilities. Services and manufacturing PMI’s will be released out of the United States at 09:45 EST.

The US dollar index (DXY) traded within a tight range, influenced by the President’s day holiday. Bids were found around the 100.80 level while sellers capped rallies around the 100.90 price point. DXY traded relatively unchanged last week resulting in a weekly doji print to soften expectations from the prior week’s bullish engulfing candle.
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USD/CAD Moves Higher as Dollar Gains Ground

USD/CAD is higher in today’s trading, as the dollar is rebounding. The US dollar index (DXY), which measures the greenback’s strength against a basket of six major currencies, is currently trading up one half of a percent. In turn, USD/CAD, is at the highs of the session, currently holding at 1.3160, a gain of 0.44%. The gains in DXY offset higher oil prices today. The dollar is higher after remarks from Fed officials have hinted at an increase in interest rates in the month of March.

With today’s move to the upside, the pair has broken above the 61.8% retracement of the last leg down, leaving the target at the high established on February 7 at 1.3200.


However, with overbought conditions now becoming a factor, a near-term breakout about this area of resistance could prove difficult.

On the downside, support is at the low established in last week’s trading, just above the 1.3000 level. On a drop below this low, the target becomes the January low established at 1.2969.

In tomorrow’s trading, Canadian retail sales will be released at 08:30 ET. The month-over-month reading for December is expected at 0.1% versus a reading of 0.2% in November. Core retail sales month-over-month for December is expected at 0.6% following a reading of 0.1% the prior month. The other key report for the week Canada is inflation data which is due Friday at 08:30. CPI is expected at 0.3% for January, month-over-month, versus a decline of 0.2% in December. Core CPI, month-over-month for January is expected at -0.1% versus the prior reading of -0.3%.
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USD/CAD Bulls Disappointed by Fed Minutes

The Canadian dollar weakened after poor retail sales data, but USD/CAD hit resistance above 1.3200 and retreated after the Fed minutes provided no hawkish surprises. On yield grounds, there should be firm USD/CAD support on dips, but markets will remain wary over potential trade shocks from the US Administration.

During US trading on Tuesday, Philadelphia Fed President Harker maintained his call for three interest rate increases during 2017 and Cleveland head Mester also stated that rates should be increased soon given that the economy is at full employment and inflation is increasing. Hawkish rhetoric pulled USD/CAD to 1.3170 from the 1.3100 area.


Canadian retail sales data was significantly worse than expected with a 0.5% decline for December compared with expectations of a small monthly increase while core sales declined for the second successive month with a 0.1% decline.

There was notable weakness in categories associated with holiday buying and the data overall may have been distorted. Forthcoming releases will be watched closely to assess whether there is evidence of sustained weakness or a recovery in spending during the first quarter.
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Canadian inflation data kicks off North American trade

January inflation numbers due at the bottom of the hour

The Bank of Canada faces a bit of a conundrum. The numbers have been improving but they're skeptical and unsure of the trade landscape.
Their general bias is neutral with a dovish lean but that could flip to something more hawkish if January CPI is strong. The consensus is for a 0.4% m/m climb after a 0.2% decline in December. In year-over-year terms, that's still a modest +1.6%.
The BOC recently rolled out three core measure of inflation called CPI common, CPI median and CPI trim so we'll look for signals there as well.


Canada January CPI +2.1% y/y vs +1.6% expected

Canadian January inflation data

  • Prior y/y reading was +1.5%
  • CPI vs +0.4% m/m expected
  • Prior CPI m/m was -0.2%
  • CPI Common
  • Prior CPI Common +1.4% y/y
  • CPI Median
  • Prior CPI Median +2.0% y/y
  • CPI Trim
  • Prior CPI Trim +1.6%


Canada January industrial product price +0.4% vs +0.5% expected

Canada producer price index information

  • Prior was +0.4%

The USD/CAD pair broke higher during the course of the week, reaching towards the 1.34 level. You can see that I have the previous uptrend line drawn on the chart, and that’s exactly where the market finds itself. If we can break above that, and even more importantly the 1.35 level, the market should continue to go much higher. The impulsivity of the candle suggests that we may do just that. Pullbacks will more than likely be buying opportunities off short-term charts. I don’t have any interest in selling.


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