Forex Market: USD/CAD daily trading outlook

Yesterday’s trade saw USD/CAD within the range of 1.2448-1.2306. The pair closed 0.84% higher at 1.2423 after gaining 0.2% the previous trading session.

At 7:06 GMT today USD/CAD was down 0.22% for the day to trade at 1.2407. The cross held in a daily range of 1.2395 – 1.2441 and is up 1% for the week so far.

Fundamentals

United States

The Mortgage Bankers Association will release its mortgage applications data for the week ended May 23rd at 11:00 GMT, expected to come in at -0.5%. The MBA Mortgage Applications index measures the change in the number of new applications for mortgages backed by the Association during the reported week. It includes both refinancing and home purchases. A better-than-expected reading should be considered as positive for the US dollar, and vice versa.

The index slid 1.5% in the week ended May 16th, with the gauge of refinancing applications rising 0.3%, while the index of loan requests for home purchases fell 3.7%.

Later in the day, Redbook Research Inc. will release its Johnson Redbook Index for the seven days through May 23rd. This metric measures the growth in US retail sales and is based on sales data provided by around 9 000 large general merchandise retailers representing over 80% of the equivalent “official” retail sales series published by the Commerce Department. The year-over-year value of the metric was at 1.8% for the seven days through May 16th, while the month-on-month reading came in at -0.2%. The data are due out at 12:55 GMT.

Canada

Bank of Canada’s (BoC) Governing Council will probably leave the target for the benchmark interest rate (overnight rate) without change at 0.75% at its policy meeting today, according to broad expectations. At its meeting on January 21st, the central bank cut its benchmark by 0.25% to the current level, citing the possible negative effect which the recent drop in oil prices might have on consumer inflation and economic growth in the country. The Bank Rate was reduced to 1.00% from 1.25%, while the deposit rate was lowered to 0.50% from 0.75%.

“Underneath the effects of the oil price shock, the natural sequence of stronger non-energy exports, increasing investment, and improving labour markets is progressing,” the BoC said in its April interest rate announcement. “This sequence will be bolstered by the considerable easing in financial conditions that has occurred and by improving U.S. demand.”

“The very weak first quarter has led to a widening of Canada’s output gap and additional downward pressure on projected inflation. However, the anticipated recovery in growth means that the output gap will be back in line with its previous trajectory later this year. Consequently, the effects on core inflation of the lower dollar and the output gap will continue to offset each other. As the economy reaches and remains at full capacity around the end of 2016, both total and core inflation are projected to be close to 2 per cent on a sustained basis.

“Risks to the outlook for inflation are now roughly balanced and risks to financial stability appear to be evolving as expected. The Bank judges that the current degree of monetary policy stimulus remains appropriate and therefore is maintaining the target for the overnight rate at 3/4 per cent.”

Short-term interest rates are of utmost importance for the valuation of national currencies. In case Bank of Canada is hawkish about inflationary pressure and overall economic activity and, thus, decides to introduce a rate hike, this will provide support to the loonie. Respectively, a decision to maintain or cut the benchmark rate, a result of a more dovish view on economic development, will usually have a bearish effect on the national currency.

The official policy decision is scheduled to be announced at 14:00 GMT.

Pivot points

According to Binary Tribune’s daily analysis, the pair’s central pivot point stands at 1.2392. In case it penetrates the first resistance level at 1.2479, it will encounter next resistance at 1.2534. If breached, upside movement may attempt to advance to 1.2621.

If the cross drops below its S1 level at 1.2337, it will next see support at 1.2250. If the second key support zone is breached, downward movement may extend to 1.2195.

In weekly terms, the central pivot point is at 1.2202. The three key resistance levels are as follows: R1 – 1.2399, R2 – 1.2519, R3 – 1.2716. The three key support levels are: S1 – 1.2082, S2 – 1.1885, S3 – 1.1765.