USDCAD Outlook: Bearish bias for the week ahead
Recap: USDCAD started last week with a bid tone as the US dollar traded up against the majors. Traders were content in their views that tapering would start in September and that US rates would rise some time in 2014. The release of the June Federal Open Market Committee (FOMC) minutes and a speech by Fed chairman Ben Bernanke speech on Wednesday initially confused players but then in a sudden burst of clarity, they started selling US dollars to beat the band. Bernanke essentially reiterated that tapering wasn't tightening and rate hikes were a long way off. As a result, nearly all the post-FOMC dollar gains were erased.
The week ahead: This week is likely to start off slowly. Despite important Chinese data in the early Asian session, a Japanese national holiday will likely dampen trading enthusiasm. For the second week in a row and on a Wednesday and Thursday, Ben Bernanke will be chatting up a storm; this time for his semi-annual report to Congress. Traders are said to have short memories but even the most senile of the bunch will remember the pain (or joy) of the last two weeks. If you recall, the Wall Street Journal had a story on the weekend following the June FOMC, essentially stating that Fed believed the "market got it wrong" with its post-FOMC reaction. Perhaps the market "got it right" with the Wednesday/Thursday dollar sell-off and Bernanke will use this week's podium to hammer home his points. Bias: Bearish US dollar.
By the time most of you read this, the Chinese Q2 GDP data (forecast 7.5 percent), industrial production (forecast 9.1 percent) and retail sales data (Forecast 12.9 percent) will have been released. I firmly believe that Chinese data is sketchy at best but nevertheless the market will accord it the same reputable status as that of the Eurozone, the UK or the USA. The sentiment is for Q2 GDP to come in at 7.5 percent with a negative bias, which should hurt Aussie and Kiwi while WTI insulates the Loonie.
US Retail Sales for June are released Monday (forecast up 0.8 percent; ex-autos up 0.4 percent). There is some belief that near-record June auto sales could push the data even higher than forecast, which if true should be bullish US dollars. However, due to the most recent reaction to the latest Bernanke statements and the clear focus on tapering, I think the response to this data will be muted.
Source: US Census Charts show last quarter of retail sales
US June CPI is released Tuesday (forecast 0.3 percent, ex food-energy 0.2 percent). Like retail sales, this data will be overshadowed by the semi-annual monetary policy report.
USDCAD Technicals: The outlook for USDCAD this week is bearish following the break below key support in the 1.0040-60 zone as well as the breech of the 1.0360 level. For the week, USD support is at 1.0350, 1.0320 and 1.0280. Resistance is at 1.0440, 1.0460 and 1.0485.
Chart: USDCAD daily chart with Fibonacci and moving averages
Chart: USDCAD four-hour chart with downtrend line and support
Charts source: Saxo Bank