Today is a federal election where 338 members will be added to Canada's parliamentary system in a turbulent race caught in a dead heat. Current prime minister, Justin Trudeau, and his liberal party are now one percentage point behind the conservatives in the election. This is causing some major volatility for the loonie in the wake of a strengthening dollar.
I think the USD has the potential to run away with all the momentum as uncertainty in the Canadian parliament election. Expectations of the Fed tapering this year are getting higher an higher as bond yields crumble to February levels and 1.32% this morning. Risk-on sentiment towards stocks and crypto are dwindling in the wake of fears of regulation and global uncertainty. When this starts happening, investors turn to safe spots like the USD. So, we could see an increase in demand for the dollar this week as FOMC economic projections will come out this Wednesday followed by Powell's testimony later in the week.
USDCAD on the 1D chart has been in a tug-of-war behavior for months now as the pair might have started to form a head and shoulders pattern if the dollar can't find any more strength on the day. It's not exactly a head and shoulders though as this second "shoulder" is noticeably significantly higher that the first; there are also higher lows on this timeframe that suggest a move higher. The pair might have good momentum may catch more momentum if price can close above the 1.28055 level (previous shoulder).
The summer was a constant back-and-forth struggle in sentiment between the two currencies. Now that we are nearing the tail end of Q3, things have changed from a monetary standpoint. The Fed keeps flashing signals of potential tapering this year and making investors consider a sooner-than-expected rate hike.
Both countries have great GDP q/q's meaning that they are rebounding at a very fast rate compared to other countries. The thing to consider between these two powerhouses is whether investors expect a raise in rates. Canada's overnight stayed the same at 0.25% although this week's beat in jobs numbers could suggest that the Bank of Canada might be looking to hike sooner. Right now, it's tough to say, but the USD looks like the best contender for higher rates to come quicker now that analysts believe the first hike to come in 2022. Looking short term, CAD seems to have the upper hand, but in the next 6-12 months time, USD might have an advantage as the economy is handling the pandemic better than Canada with a 5.2% unemployment rate vs Canada's 7.1%.
USDCAD looks like it formed a head and shoulders pattern on the 1D chart which could be the start of a downtrend from a technical standpoint. The 50 and 200 DMAs lie below as well as a support level around 1.24841. However, if price can break out of its consolidation zone (above 1.26697ish range) we could get a higher move to the first shoulder around 1.28029.
Let's look at the news event's we've got lining up this week...
The Reserve Bank of Australia is expected to keep interest rates on hold at 0.10% this week at their Rate Statement. We may see some negative remarks considering the number of states placed back in lockdown over the past month.
Also, note that the GDP fell short of expectations in Q2 slowing from the previous expansion at 1.9% to just 0.7%; although the unemployment rate declines, it was mostly due to a fall in labour force participation. With this, policymakers may delay their tapering plans as they cited they will adjust to any "significant setback" for the economy.
No interest rate changes are expected from the Canadian central bank, and officials will likely standstill ahead of the national elections after seeing the unexpected 1.1% contraction in Q2 GDP. Also, note that number crunchers are predicting a monthly GDP contraction for July mostly due to the disruption in the auto industry supply chain and weaker residential investment.
The European Central Bank is also expected to keep rates and bond purchases unchanged. Analysts are divided on whether or not the central bank will be making tapering plans, as the PEPP is scheduled to finish in Q1 next year. Scaling down the size of the purchases could make for a smoother transition to their regular QE program, but policymakers might still decide to defer any actual decision until later this year. Also, any significant revisions to growth and inflation forecasts at this time could impact taper speculations.
The Employment Change report is a measure of the change in the number of employed people in Canada. Job creation is an important leading indicator of consumer spending, which accounts for a majority of overall economic activity. The number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labour-market conditions.
Job creation is expected to show a slower 75k gain in hiring versus the earlier 94.5k increase, which should be enough to bring the unemployment rate down from 7.5% to 7.3% in August.
This week is going to be pretty quiet for Canada while the US's preliminary GDP, unemployment claims, and Powell speaks on Friday. In the last two trading days, USDCAD has topped out and dipped a little over 1% after touching to new highs. This week's USD news will most likely determine where the pair is going to move this week.
Judging the past couple of weeks in unemployment claims, I think the US will likely beat expectations again by a close margin or this week's number will be less than last week's. Early in the week, we might continue to see the pair fall lower, but once it hits a certain level, I think that the pair has a good chance of rebounding back to the upside. More volatility could be expected later on this week when Powell speaks and with the Jackson Hole Symposium on Thursday.
USDCAD on the 1D chart still looks bullish after touching new highs in the 1.29000s. Price had a big break out of its consolidation zone for the second time which could now serve as a new level of support. If price decides to come hit back to this level, I think there is some potential in playing the long side of this pair.
Here is the same pair on the 4H timeframe. There are eight straight red candles that are taking price nearer to support suggesting a strong short term downtrend. However, if price hits the 1.26503 level, it could bottom here and try working its way back up.
CAD pairs are moving in favor of the loonie for the most part this week as oil prices continue to surge. US oil inventories beat expectations once again which is a good sign for oil's demand and a good sign for the Canadian economy. Gold also helps Canada a good bit, which has been performing pretty well on a slowing US economy. I like CAD's strength going into next week, but GDP tomorrow will definitely be an impactful factor in the loonie's strength.
Canada's inflation rate chart above actually shows some slowing in inflation which is the opposite of what Powell says about the USD's inflation rate. The Fed expects a higher rate going forward although he argues that it is transitory and not inflationary. Either way, CAD is starting to look much better after this news and could see some strength this and next week in my opinion.
UC looks pretty bearish right now, especially if it can't bounce off this support zone. The pair also broke under a rising trend line on the 1D chart which looks increasingly bearish. If price bounces, it will likely retrace on its 200 DMA which is also a resistance level around 1.26000. But, if price doesn't bounce, I can see a further move down to its 50 DMA. The pair is now back in a heavy consolidation zone.
CJ looks pretty bullish here on the 4H chart where price broke above a resistance zone. But, the break is still kind of weak, and a clear close above it would be a good sign for the pair. If the 1H has a nice close above this level, I think that would be the start of a continued run to the upside. I traded this pair with a bullish case, and I still feel like we got some room to run here to at least the next top around 88.550. But, that all depends on if price can hold itself at or above this level it's currently hovering on.
For this pair, I'm kind of mixed because of the price action this week makes it look stronger than CAD from a techincal standpoint. So, in the short term (this and next week) I don't really know where it's going to move. However, the pair likes the 50 DMA for support, it couldn't reach the highs to test a double top around 1.75660, and it also couldn't fall back down to a falling trend line for support. GBPCAD could be showing signs of an early wedge pattern on the 1D.
I really like these lower lows on the 4H especially after price broke underneath its channel that it rode since June. If price comes up to retest that resistance (trend line and resistance level around .92273, I think that could be a decent short setup here, especially amid the Australian lockdown.
Members of OPEC agreed to increase oil production by September of this year. Production cuts are around 5.8 million barrels a day, and OPEC is going to stop these cuts by increasing barrel production by 400,000 per day. Members are now starting to want to increase production as global economies begin reopening despite the growing rate of the delta strain. USOil is up 0.30% on the day today at the time of writing this.
How this affects Canada
A big factor in Canada's GDP is oil production, and an increasing demand in oil helps both the price of oil and the Canadian economy. An increase of supply will lessen demand which could hurt Canada while a cut in barrel production is good for the loonie.
It seems like an increase of 400,000 barrels each day starting August of this year is a sign of economic recovery, but that doesn't seems like a lot compared to the 5.8 million cut each day. So, there's an argument that supply might not be enough to outpace the demand for oil on a global scale. I think there's an argument for both sides here, and it depends on which currency pair you look at. I am bullish CADJPY, USDCAD & CADCHF, bearish GPBCAD.
GCAD came down today 0.6% and is nearing support around 1.72590 if price can't find support slightly above at its 200 DMA. Higher lows on the 1D chart have started a rising trend line formation.
CJ coming up off lows today and formed a double bottom on the 1D chart. Price didn't quite reach its 200 DMA, but does show some rejection from the support zone. Resistance is around 87.107.
CADCHF bounces off its 200 DMA on the 1D chart and is hitting resistance. The pair is up 0.80% for the day as it held the moving average really well.
USDCAD comes off highs on the daily chart and shows some rejection from the top. New support is around 1.26530 and its 200 DMA should price come back down to this level.
Hey everyone! Welcome to this week's forex forecast for the week ending July 23rd, 2021. I'm TraderBart with A1 Trading, and this week I'll be looking at GBPUSD, USDCAD, EURCHF & XAUUSD.
Price seems to be failing to break this mid-term horizontal level at 1.1375, which has previously been switching from support and resistance. Recently we had a break of this structure and trend as price broke out of the long-term ascending channel, which has been holding since the initial covid drop in March last year. Looking for price to make its next lower low, we could likely see price form a new trend of a descending channel. Read my full G/U deep dive here.
USD strength continuing to push this market higher, further away from the descending channel it has recently broken out of. If price makes a clear break above the 1.258 level and shows strong rejection following the retest, we could likely see this market head higher to previous key horizontal levels such as 1.293. If we fail to see this happen, we may see some consolidation around this zone for a while, waiting for a news spike to occur. Read my full U/C deep dive here.
Price has gone underneath the previous resistance level from the ascending triangle pattern back in early 2021. We did recently see price make the next touch of the descending channel in the bullish flag pattern; we could likely see price continue the trend and head towards the channel's top next. Look out for a break above the resistance level; once this happens, we could see this move happen. If price continues to struggle below this level, we could see it consolidate for a while until a notable news event spikes the next move.
Gold once again broke out of the long-term descending channel pattern and headed towards the liquidity void around 1880. Look out for price to form short term horizontal levels and showing rejection off these levels where we could see strong bullish moves. Long-term, I'm expecting price to break previous all-time highs; however, for now we're waiting on move order blocks to form where traders are mostly one-directional for major institutions to take advantage of this.
In the midst of a big week for the USD, we cannot overlook major news for the Canadian dollar. BOC will come out with their monetary policy report tomorrow along with their overnight rate, which will probably maintain at 0.25%. CAD pairs are some of the hardest movers today which is probably due to the anticipation of tomorrow's news and rising oil prices.
The loonie looks stronger than some others, but it is still early in the week, and AUD and USD still have news to report throughout the week. In the longer term though, Canada's jobless rate is very high at 7.8%, 3.6% inflation, and weak GDP of 0.3% leads me to believe that the loonie is not a long term bullish play. Although they have a smaller inflation rate than the US, Canada's GDP is nothing notable compared to the US's GDP growth rate q/q of 6.4%. Australia's employment change is expected to be a mere 19K versus its last month's report of 115K, and unemployment is expected to remain unchanged at 5.1%. The Bank of Japan is set to release their monetary policy report this Thursday while the Japanese government gears up for giving out more stimulus, although the liberal democratic party is calling for an extra 30 trillion yen. This could help the yen in the short term, but overall, Canada's economy remains the stronger one.
USDCAD- looks bullish
AUDCAD- looks bearish
CADJPY- looks bullish
UC is still in an uptrend from June, and price is up 0.47% on the day. The pair does look like it's pulling back from the highs, and major support is at 1.24867 if price continues to dip. A supportive trend line lies right below should the USD slip during the week.
AC has been in a channel since early June, and it looks bearish on this 4H timeframe as well. We have an overall downtrend while price hovers around its 200 SMA. Support lies below around 0.92909 and the bottom of the channel.
CJ bounced off support around 88.013 forming its second bottom on the 4H chart and is now heading for resistance around 88.400. A break in this level could lead to a test at higher resistance around 88.906.
Let's look at the news event's we've got lining up this week...
The USD Consumer Price Index (CPI) report is releasing on Tuesday, which measures the change in the average price basket of goods and services by consumers, which can be anything from food, transportation and medical care. Changes in the CPI are used to assess price changes associated with living in the country. It is one of the most used statistics to identify periods of inflation or deflation.
Analysts expect headline inflation to dip from 0.6% to 0.5% in June, while the core version could slide from 0.7% to 0.4%. We should see big volatility around this event as USD bulls are waiting for more signs that the Fed could taper stimulus soon.
The Reserve Bank of New Zealand (RBNZ) Monetary Policy Decision meeting is on Wednesday, and it's expected that no actual interest rate changes are due.
Previously, RBNZ Governor Orr mentioned that the economy is returning to pre-pandemic levels, hinting that the monetary policy may be adjusted soon. So any further hawkish remarks from the RBNZ could boost tightening expectations.
The Bank of Canada (BoC) is the central bank of Canada which is responsible for the stability of the Canadian Dollar currency, full employment, and economic prosperity and welfare of the Australian people. This is the primary tool the BoC uses to communicate with investors about monetary policy, as they discuss the economic outlook and offers clues on the outcome of future decisions.
The BoC is expected to keep interest rates on hold at 0.25% for the time being, as they have already reduced its asset purchases in the previous statement. Some analysts are still expecting to see another reduction in QE, potentially slowing the pace of purchases from C$3B to C$2B per week. Moreover, updated economic projections are also due, and should give CAD traders clues on the timing of the BoC's potential rate hike.
The Employment Change report is a measure of the change in the number of employed people in Australia. Job creation is an important leading indicator of consumer spending, which accounts for a majority of overall economic activity. The number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labour-market conditions.
Following the impressive 115.2k increase last month in job hiring, analysts are expecting Australia to print a slowed 20.3k rise in employment for June, which should be enough to bring the unemployment rate down from 5.1% to 5.0%. It's recommended you pay attention to full-time and part-time hiring numbers.
Analysts are expecting a slight dip in price pressures in Q2, and the reading could fall from 0.8% to 0.7% which isn't a major difference but still shows negative results. Stronger than expected results could keep market participants hopeful that the RBNZ is bound to tighten policy soon.
After several cities in Japan have declared a state of emergency due to fresh outbreaks, the Japanese central bank is expected to sit on its hands and keep policy unchanged. The BoJ is expected to slash its economic forecasts, confirming its nowhere close to reducing stimulus.
The USD Retail Sales Report is set to Tuesday which shows the total value of sales at a retail level. Consumer spending accounts for a majority of economic activity, and therefore when citizens spend, it is a sign that people have jobs, people are making money, and people are able to spend money for whatever it is they want.
Analysts expect to see a 0.5% decline in the USD Retail Sales after the earlier 1.3% slump. The Core reading is set to rebound by 0.4% after the previous reading at 0.7%. This report will likely paint a mixed picture of consumer spending, so I suggest looking at the data once released before making any trading decisions.
Canada posted great jobs data this morning after adding 230K new jobs in June, and unemployment rate met expectations at 7.8%, last month's was 8.2%. Oil is another big factor in the Canadian economy, and the latest OPEC meeting showed us some bearish sentiment as countries could not reach agreement. So far today, CAD has been up overall on this jobs news, but other factors are keeping things mixed for investors.
When it comes to the Canadian dollar alone, I am more bullish than not. And latest jobs news is a bullish sign going into next week as other countries are hurting like the US in unemployment claims. The recent rise in oil prices is a good sign too for the loonie, and USDCAD next week will probably be bearish up until US PPI news at the least.
USDCAD on the 4H timeframe is still in an uptrend from early June, but recent price action and news suggests that we might be in for another leg lower. Price is still currently sitting on support, but if that breaks, we might see price go all the way back to a supportive trend line. However, price could see a bounce off this key support level.
CJ looks very bullish going into next week as the yen continues loses its luster amid risk-on sentiment. Safe havens are not looking as attractive right now, and this pair is heading toward resistance around 88.500 on the 4H timeframe. We can look for a break above this resistance line in order for price to come up and test more resistance at 88.900s.
CADCHF also looks bullish down at this price, especially since price has a ways to go to hit resistance around 0.73619 on the 4H timeframe. Could be a good play if you're trying to go against safe haven plays like the Yen or Swiss Franc.