USD/CAD Nearing Critical Support Ahead Of Friday’s Canadian Data

USD/CAD dropped lower in European trading today, on pace to post a third consecutive day of losses. The pair bounced higher slightly ahead of critical support on the back of a decline in oil prices but lost upside momentum quickly.

Important support in the exchange rate is found at 1.2538 as the level triggered a reversal in May 2016 for a one-year recovery that added just over 10%. USD/CAD reached a low of 1.2541 today.

Canada May retail sales +0.6% vs +0.3% expected

Prior was +0.7% (compared to +0.3% expected at the time and 0.8% originally reported
Ex-autos -0.1% vs 0.0% expected. Prior month was revised to 1.3% from 1.5%.
Sales at $48.9 billion in May
Sales up in 5 of 11 subsectors
Higher sales at motor vehicle parts dealers were the main contributor. Up 2.4% in May.
After removing the effects of price changes, retail sales in volume terms rose by 1.1%
E-commerce sales account for 2.3% of total retail sales

USD/CAD: Where To Consider A Fresh Short On A Bounce?

TD FX Strategy Research thinks that the 1.2450/60 area in USD/CAD will act as formidable support but the risk of another significant move lower is still intact.

"The narrative we have heard thus far is that USDCAD has come a long way. Indeed, a slew of standard technical measures—such as the RSIs—suggest that this is indeed the case. While we broadly agree with this premise, it is not unusual for USDCAD’s correction to run deep; see the January 2016 episode for example though it is worth noting that USDCAD did not rally as much to local peak.

Further, data according to CFTC suggests that positioning is closer to neutral, leaving extension risk lower a non-trivial matter still.

While we think a lot of good news is baked into the CAD-leg, we see little in the way of a catalyst to trigger a significant repricing to generate material USDCAD topside. This is particularly the case on the rates/BoC outlook as the data continues to perform (see recent retail sales/inflation)," TD argues.

"1.2700 acts as the first resistance point while the 1.2850/1.2900 area would have us reconsider fresh shorts," TD advises.

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USD/CAD Hits A 2-Year Low As The Dollar Sells Off Following Fed Statement

The greenback fell under pressure after the Fed Statement to trigger a technical break in USD/CAD below the 2016 low of 1.2460. The pair has touched a low of 1.2412 but has since recovered. As such, the daily close will be important in assessing if the break will be sustained.

The Federal Reserve left rates unchanged as largely expected and only made slight changes in the accompanying statement. The view towards the labor markets improved slightly and inflationary pressures were acknowledged although the Fed did not signal a clear shift from its stance that transitory factors are keeping inflation low.

USD/CAD Surges Following Fake Break Of Support

USD/CAD recovered sharply higher after dropping to the lowest level in over two years yesterday. The pair is on track to post a bullish engulfing candle on a daily chart to wipe out two prior days of losses and has moved back into positive territory for the week.

Yesterday’s Fed meeting triggered a broadly weaker dollar despite the FOMC statement containing only minor changes as compared to the prior statement. The dollar decline led to significant breaks is several pairs including multi year highs for the euro, kiwi, and loonie while some other major currencies extended higher above prior peaks.

USD/CAD Held Higher On Weak Canadian Data

Despite a dollar sell off and a rally in oil prices, USD/CAD held near last week’s low as Canadian data fell short of expectations.

Statistics Canada reported the raw materials price index to decline 3.7% in June, falling short of the analyst consensus for a decline of 3.2%. The industrial product price index declined 1.0% in June versus an expected 0.3%.

Canada July net change in employment 10.9K vs 12.5K estimate

The Canada net change in employment came in a little weaker than expected but in line for the most part at 10.9K vs 12.5K
  • The unemployment rate fell though to 6.3% vs 6.5%.
  • The rate is the lowest since October 2008
  • The full time employment change was strong at +35.1K
  • Part time employment was lower at -24.3K
  • 12 months employment rose 388K (+2.1%) mostly on the back of full time jobs (+354K or +2.4%).
  • 12 month hours worked increased by 1.9% as well
  • Manufacturing +14K

USD/CAD: Buy Dips Near 1.2650 Or On A Break Of 1.2740 Targeting 1.29

TD FX Strategy Research notes that USD/CAD failed to make a convincing break of the key 1.274, briefly marking some time below 1.27.

"This week the focus shifts back to local data, with July CPI likely to get close attention. TD expects a dovish print against market expectations, which is liable to benefit USDCAD. This could intensify the recent squeeze in the pair, especially since CAD looks expensive to data momentum and positioning looks overextended.

Fd minutes and retail sales are likely to send offsetting signals, so we look to buy into USDCAD dips with support seen near 1.265. We still need a convincing upside break of the 1.274 level to signal a push to 1.29," TD advises.

Canada June international securities transactions report

Canada June international securities transactions CAD -0.92bln vs 29.44bln prev

Foreign Securities Purchases measures the overall value of domestic stocks, bonds, and money-market assets purchased by foreign investors.
A higher than expected reading should be taken as positive/bullish for the CAD, while a lower than expected reading should be taken as negative/bearish for the CAD.

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