USDCAD: Upside Breakout

Following last Thursday’s US Initial Jobless Claims dropping to an 8-year low, the USDCAD extended above its symmetrical triangle on the Daily timeframe. The conclusion of the symmetrical triangle encouraged bullish movement in the USDCAD and as long as the correct fundamentals collaborate together over the next few days, this pair has potential to move further to the upside.

The major dominating factor behind how high this USDCAD rally can really extend, likely rests behind how the financial markets react to this week’s higher risk US economic data.

On Wednesday afternoon, the latest ADP employment change is announced. Following last week’s impressive Initial Jobless Claims, alongside expansion being recorded in both the United States recent Services and Manufacturing PMIs, there is room to be optimistic for a strong ADP employment change. An impressive ADP report will raise optimism for this Friday’s non-farm payroll. Just 15 minutes after the ADP employment change, the latest US GDP is released. According to a Reuter’s survey of economists, US Gross Domestic Product likely increased by an annualised 3% in the second quarter.

Wednesday evening will then conclude with the latest Federal Reserve FOMC decision, where it already seems a forgone conclusion that the Federal Reserve will continue to taper QE. Due to this month’s FOMC meeting being absent from a Janet Yellen press conference, investors will be keeping an eye on the closing statement and if any discussions have taken place regarding when the US Central Bank could raise interest rates.

With exception of Thursday’s monthly GDP reading, economic data from Canada is low in quantity this week. There is a valid argument to suggest that the Canadian currency has been recently overbought. Investors have sought the Canadian currency since Canada’s last two CPI (inflation) readings reached the Royal Bank of Canada’s (RBC) CPI target to raise interest rates. However, the RBC have so far refrained from raising interest rates and actually downgraded its economic forecasts. The current expectations for Canada’s monthly GDP is 0.3% but bearing in mind the RBC recently downgraded economic projections, alongside June’s IVEY services PMI contracting to a six-month low, Thursday’s GDP could disappoint.

In regards to the technicals on the Daily timeframe, the RSI is currently suggesting that there is possible additional movement for the USDCAD to accelerate further. The news that US Consumer Confidence jumped to its highest level since December 2007 on Tuesday encouraged the USDCAD to surpass the 1.0820 resistance level. The USDCAD next likely aim is to extend above the 18th June high, 1.0890.

From here, a June high (1.0954) could be targeted, but it would likely require a strong GDP release, alongside anticipation of another possible impressive US NFP report on Friday to rally towards 1.10.

About the Author
Jameel Ahmad is the Chief Market Analyst at Forex Time (FXTM). He holds a BA (Hons)degree in Business Studies with Accountancy & Finance from the University of the West of England, Bristol, UK. In his early career, Jameel worked on a variety of projects in the Middle East, Europe and United States, which allowed him to develop a detailed understanding of banking, international finance and asset management. Later on he worked as a strategic research analyst for an international brokerage firm, where he gained invaluable experience in writing FX commentaries and fundamental analysis on distinguished financial websites.

Leave a Reply