Published on May 26, 2023

Daily Analysis For USD/CAD 26-05-2023

USD/CAD Analysis

Key Points

• The USD/CAD pair is experiencing fluctuations near its highest level in a month as it continues a three-day winning streak. The prevailing risk-off sentiment is putting pressure on oil prices, which in turn is supporting the strength of the US Dollar despite its recent pullback.

• The US Dollar is benefiting from positive economic data, while concerns about a potential US default are keeping Canadian Dollar traders cautious.

• Traders are closely watching the upcoming release of US Durable Goods Orders data and the Core Personal Consumption Expenditure (PCE) Price Index, which is the Federal Reserve's preferred inflation gauge. These data points are expected to provide clearer directions for the USD/CAD pair.

• It's worth noting that the price of oil, a key driver for the Canadian Dollar, is being influenced by the risk-off sentiment prevailing in the market. If the risk aversion continues, it could further weigh on the Canadian Dollar and support the USD/CAD pair.

• Overall, the USD/CAD pair remains in focus as traders monitor economic data releases and developments related to the US debt ceiling, as they are likely to impact the direction of the pair in the near term.

Today's Scenario: - After reaching a monthly high, USD/CAD bulls are taking a pause as the pair retreats to 1.3645 during the mid-Asian session on Friday. The retreat is attributed to the recent pullback in the US Dollar, along with downbeat oil prices and a negative market sentiment.

While the pullback in the US Dollar may be due to cautiousness ahead of key data releases, concerns about a potential US default and positive US Q1 GDP and activity numbers are keeping USD/CAD buyers optimistic. The mixed sentiment surrounding oil prices also adds to the trading dynamics of the USD/CAD pair.

The US Dollar Index (DXY) has pulled back from its highest levels since March 13, currently trading at 104.17, as traders await the release of US Durable Goods Orders for April and the Core Personal Consumption Expenditure (PCE) Price Index, which is the Federal Reserve's preferred inflation gauge.

On Thursday, the second estimate of US Q1 GDP was revised up to 1.3% compared to the initial forecast of 1.0%. Other data releases, such as the Chicago Fed National Activity Index and the Kansad Fed Manufacturing Activity, also showed improvements. However, hawkish expectations for the Federal Reserve and concerns about the US debt ceiling expiration continue to support the US Dollar. Talks about the debt deal are ongoing, with US House Speaker Kevin McCarthy acknowledging the challenges and the commitment to reaching an agreement.

Meanwhile, WTI crude oil is trading indecisively around $71.85, unable to capitalize on the US Dollar's retreat despite comments from Russian Deputy Prime Minister Alexander Novak suggesting a potential price of $80.00.

The market sentiment is reflected in mild losses in S&P500 Futures, while yields are grinding higher. These factors are supporting USD/CAD bulls ahead of the key US data releases and the looming debt payment default.

Diagram of USD/CAD

Economic Events : -

GMT	Event	Impact	Currency
00:30	(Japan) Tokyo Core CPI YoY	Low	JPY
00:30	(Japan) Tokyo CPI YoY	Low	JPY
00:30	(Japan) Tokyo CPI Ex Food and Energy YoY	Low	JPY
02:30	(Australia) Retail Sales MoM	High	AUD
04:35	(Japan) 3-Month Bill Auction	Low	JPY
06:00	(Japan) Leading Economic Index	Low	JPY
06:00	(Japan) Coincident Index	Low	JPY
07:00	(Lithuania) Retail Sales MoM	Low	EUR
07:00	(Lithuania) Retail Sales YoY	Low	EUR
07:00	(United Kingdom) Retail Sales ex Fuel MoM	High	GBP
07:00	(United Kingdom) Retail Sales ex Fuel YoY	High	GBP
07:00	(United Kingdom) Retail Sales YoY	High	GBP
07:00	(United Kingdom) Retail Sales MoM	High	GBP
07:30	(Switzerland) Non Farm Payrolls	Low	CHF
07:45	(France) Consumer Confidence	Medium	EUR
08:15	(Euro Area) ECB Enria Speech	Low	EUR
08:40	(Euro Area) ECB Lane Speech	Medium	EUR
09:00	(Italy) Consumer Confidence	Medium	EUR
09:00	(Italy) Business Confidence	Medium	EUR
09:00	(Austria) Bank Austria Manufacturing PMI	High	EUR
10:10	(Italy) 6-Month BOT Auction	Low	EUR
11:00	(France) Jobseekers Total	Low	EUR
11:00	(France) Unemployment Benefit Claims	Medium	EUR
11:00	(Luxembourg) Balance of Trade	Low	EUR
13:30	(Canada) Wholesale Sales MoM	Low	CAD
13:30	(United States) Goods Trade Balance	High	USD
13:30	(United States) Wholesale Inventories MoM	Medium	USD
13:30	(United States) Core PCE Price Index MoM	High	USD
13:30	(United States) Core PCE Price Index YoY	Low	USD
13:30	(United States) PCE Price Index MoM	Medium	USD
13:30	(United States) PCE Price Index YoY	Medium	USD
13:30	(United States) Personal Spending MoM	High	USD
13:30	(United States) Personal Income MoM	High	USD
13:30	(United States) Retail Inventories Ex Autos MoM	Medium	USD
13:30	(United States) Durable Goods Orders Ex Transp MoM	High	USD
13:30	(United States) Non Defense Goods Orders Ex Air	Low	USD
13:30	(United States) Durable Goods Orders MoM	High	USD
13:30	(United States) Durable Goods Orders ex Defense MoM	High	USD
15:00	(United States) Michigan Consumer Expectations	Low	USD
15:00	(United States) Michigan Current Conditions	Low	USD
15:00	(United States) Michigan 5 Year Inflation Expectations	Low	USD
15:00	(United States) Michigan Consumer Sentiment	High	USD
15:00	(United States) Michigan Inflation Expectations	Low	USD
16:00	(Canada) Budget Balance	Low	CAD
18:00	(United States) Baker Hughes Oil Rig Count	Low	USD
18:00	(United States) Baker Hughes Total Rig Count	Low	USD

Buy Scenario: - On the upside, a daily close above the immediate resistance line around 1.3650 would need confirmation from the previous monthly high of nearly 1.3670 to regain momentum for buyers in the USD/CAD pair.

If these levels are surpassed, the market's attention will likely turn to the yearly high reached in March around 1.3860. Till we do not advise to buy USD/CAD.

Sell Scenario: - The USD/CAD pair is retreating from its previous monthly high and has reached an intraday low near 1.3625. This indicates a reversal from a downward-sloping resistance line that has been in place since March 28, with the current level around 1.3650.

However, the pullback in the pair is not particularly strong, as it continues to hold above a key resistance line from early March. The presence of bullish MACD signals and a positive RSI (14) line, which is not in overbought territory, further support the bullish sentiment.

As a result, the pullback in the USD/CAD pair is struggling to break below the resistance-turned-support line at around 1.3560. If this support level is breached, the convergence of the 50-day moving average (DMA) and a rising trend line spanning three weeks, currently near 1.3525, could act as another obstacle for sellers before a potential shift in control.

In such a scenario, the 61.8% Fibonacci retracement level of the upside move from February to March, around 1.3490, may come into play, guiding the pair further downwards towards an upward-sloping support line from February, located around 1.3380.Till we do not advise to sell USD/CAD.

Support and Resistance Level: -