USD/CAD – Loonie Bears Looking for Value on Dips

  • CAD rallies on soft U.S Retail Sales
  • Dollar bulls looking to add to their long positions
  • Market is expecting a soft Canadian jobs report
  • Canadian jobs report beat expectations

The CAD ($1.2653) is stronger this Thursday morning; extending earlier gains against the ‘mighty’ dollar after the U.S reported retail sales declining (-0.6% – third consecutive monthly decline) more than expected in February. Again, unseasonably severe winter weather is being held responsible for the hit to both headline and the core print (-0.1). As a result, analysts are now forecasting that Q1 U.S GDP growth will come in around the more modest 2.0% level. Most of the market will now begin to focus on next weeks FOMC meeting. Will Ms. Yellen and he fellow policy makers drop “patient” from their copy?

Risk of a “Double Top”

Yesterday, the market hit $1.2800, matching the 2015 high posted in late January and triggered the medium term technical objectives at $1.2780 that have been in play since the dollars pull back to $1.2575 on Monday. The loonie has temporarily managed to brush off some second-tier domestic data, which showed Canada new-home prices slipping in January (NHPI m/m -0.1%).

The market certainly wants to get long USD’s, but prefers not to pay up to own them. Dollar bulls ideally would like to get long USD/CAD ahead of $1.2600 and use Monday’s lows for support. Have they missed the boat? Today’s dollar pull back has stopped just short of their entry levels ($1.2616) and with tomorrows Canadian employment numbers expected to be on the soft side they may not get that opportunity again during the North American session.

This week’s key event risk for Canada was always going to be Friday’s jobs number for February. The report is rather mixed with the unemployment rate ticking up to +6.8% while the headline print lost -1k jobs, beating a forecast loss of -5k. USD/CAD initial reaction has been rather limited – the loonie has managed to temporarily pare losses ($1.2730). Currently dips are expected to be bought still as oil stay heavy. The techies still see short term support around $1.2700-10, then $1.2680-90 and much bigger down near Thursday’s lows $1.2620. The market needs to break through $1.2800 to keep the dollar bulls inspired and if that breaks then March 2009 high comes into play. The risk is of a $1.2800 double top

Forex heatmap

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell