Canadian Dollar edges higher ahead of major macroeconomic data releases

• Canadian Dollar pushes up a few pips as traders await the release of key macro data from both the US and Canada. 

• The data is likely to inject considerable volatility in the pair if it differs from estimates. 

• Monday’s weak close reduces the technical bullishness of the strong reversal that started on Friday for USD/CAD.

The Canadian Dollar (CAD) edges up marginally against the US Dollar (USD) on Tuesday, as traders bide their time before key data releases from Canada and the US. Out of Canada inflation data for June is scheduled for release at 12:30 GMT whilst from the US, at the same time, the US Census Bureau is set to publish Retail Sales data for June. 

The USD/CAD pair trades in the 1.32s as the US session gets underway.  

Canadian Dollar news and market movers 

• The Canadian Dollar edges higher against the US Dollar as traders await key market moving data from both the US and Canada. 

• The Canadian headline Consumer Price Index (CPI) is forecast to show a 3% rise in June compared to the 3.4% registered in May. 

• Core CPI (excluding volatile Food and Energy) is forecast to come out at 3.5% in June from 3.7% a year earlier. On a monthly basis, the measure is expected to increase by 0.5%, more than the 0.4% seen in May.   

• An unexpected rise in inflation, especially core inflation, would trigger a rally in CAD (bearish for USD/CAD) as it would heighten expectations of the Bank of Canada (BoC) raising interest rates at its September meeting. Higher interest rates are supportive for the local currency since they attract greater inflows of foreign capital. The opposite will be the case if the CPI data comes out lower.

• US Retail Sales are forecast to rise 0.5% in June from 0.3% in May, and Retail Sales Ex Autos by 0.3% from 0.1%. 

• A higher-than-expected result would support the US Dollar (bullish for USD/CAD) as it would show the US economy is in rude health, making it more likely the US Federal Reserve (Fed) will have to raise interest rates several times before bringing inflation under control. The opposite is true if the data falls below estimates. 

• Friday saw a strong reversal in USD/CAD on the back of a combination of weaker Crude Oil prices, which weighed on CAD, and much better-than-expected Michigan Consumer Sentiment data out of the US, which supported the US Dollar. 

Canadian Dollar Technical Analysis: Monday’s weak close disappoints bulls 

USD/CAD is in a long-term uptrend on the weekly chart, which began at the 2021 lows. Since October 2022, the exchange rate has been in a sideways consolidation within that uptrend. Given the old saying that ‘the trend is your friend’, however, the probabilities of an eventual continuation higher marginally favor longs over shorts.

USD/CAD appears to have completed a large measured move price pattern that began forming at the March highs. This pattern resembles a 3-wave ABC correction, in which the first and third waves are of a similar length (labeled waves A and C on the chart below). 

US Dollar vs Canadian Dollar: Weekly Chart

A confluence of support situated in the upper 1.3000s, which is made up of several longer moving averages and a major trendline, prevented last week’s decline from extending any lower and provided a foundation for the reversal on Friday and Monday.  

US Dollar vs Canadian Dollar: Daily Chart

The long green up-bar that formed on Friday is a bullish engulfing Japanese candlestick reversal pattern. When combined with the long red down bar that formed immediately before it the two together complete a two-bar bullish reversal pattern. 

However, Monday’s weak close has brought into doubt the bullish conviction in the reversal and failed to confirm the bullish engulfing. 

It will take a decisive break above the 50-day Simple Moving Average (SMA) at circa 1.3400 to refresh and reconfirm the USD/CAD long-term uptrend. Nevertheless, bulls marginally have the upper hand, with the odds slightly favoring a recovery and a continuation higher. 

Only a decisive break below 1.3050 would indicate the thick band of weighty support in the upper 1.30s has been definitively broken, bringing the uptrend into doubt.