- USD / CAD weakens due to U.S. economic concerns over COVID-19.
- The potential for further easing from the Federal Reserve adds weight.
- Retail sales in Canada stronger than expected.
- The modest rise in crude oil helped the Canadian dollar.
- FXStreet Forecast Poll suggests consolidation at the end of the year.
The USD / CAD drifted lower amid fears that the count of the pandemic in the United States could lead to damaging economic shutdowns in some states and prompt the Federal Reserve to ease credit further.
Although viral diagnoses are increasing all over the world, the particular surge in the United States has hinted at the dollar risk premium that has been the standard market response for the past eight months. This premium had exceeded 1.4600 by the end of March and its withdrawal has been a general feature of currency trading since the end of June.
Technically the USD / CAD rebounded from weak support at 1.3050 with stronger deterrence at 1.3000. Initial resistance is at 1.3150. The upper limit of the descending channel is approximately 1.3250 and the lower limit approximately 1.2800. Overall, the range for the week was 1.3034-1.3142, with an open Monday at 1.3135 for Friday’s close at 1.3084.
Canadian economic data was generally favorable to the loonie. Housing starts edged up in September, continuing the five-month streak of over 200,000. Wholesale and retail sales in September were much stronger than expected, and the preliminary retail reading for October was also good.
October retail sales in the United States fell short of expectations, and the weaker revisions in September drew attention to the potential impact of COVID-19 to come.
West Texas Intermediate rose 5.1% on the end of the week to $ 42.44, helping the Canadian dollar and the resource-rich economy, but it remains below resistance at $ 43.50. He did not question the pandemic divide that has blocked all recovery attempts since the March collapse. Crude oil and commodity prices are on hold until the pandemic loosens its grip and allows for a comprehensive global recovery.
Falling Treasury bill yields also hurt the US dollar. The 10-year Treasury yield is off 13 basis points after hitting a three-month high on November 10 of 0.972%. The bond closed at 0.842% on Friday.
USD / CAD outlook
The continued decline in USD / CAD is the old-fashioned pandemic scenario. The US dollar drifts down, removing a viral premium that no longer exists as the market is locked against recovery judgments until the pandemic recedes.
The USD / CAD has been trading at pre-February levels for three months. Ultimately, traders will need to decide which North American democracy will experience a faster post-viral surge.
For most US dollar-based pairs, the benefit will be in the historically better growth of the US economy. This might not be as true for the USD / CAD as the initial phase of a global recovery will play on its resource saving.
Technically all indicators point low for the USD / CAD but they are all weak. The descending channel is intact and well defined with substantial margin at the borders above and below market level. The resistance lines at 1.3150 and 1.3200 and the support at 1.3050 and 1.3000 are close as the market has exhausted the logic of a move in either direction.
The COVID-19 drama dominated markets for nine months. The end seems to be in sight, but it is, at the moment, too far away for practical market planning. After this dismal year, traders will wait for concrete signs of improvement before placing their hopes in market positions.
Canadian statistics November 16-20
Manufacturing sales rose 1.5% in September, as expected, reversing the 1.4% decline recorded in August. Housing starts were 214,900 in October, slightly below the 222,000 forecast, although up from 208,700 in September. Housing starts averaged 228,540 from June to October. Wholesale sales rose 0.9% in September, more than double the forecast of 0.4% and three times the rate for August.
The Consumer Price Index climbed 0.4% in October and 0.7% for the year. The forecasts were 0.2% and 0.4%. The Bank of Canada’s core consumer price index for the month was as expected at 0.4% and 1% for the year on a projection of 0.9%.
Retail sales rose 1.1% in October, much better than the forecast of 0.2% and the gain of 0.4% in August. Non-auto retail sales also rose 1% on an expectation of 0.2%. They rose 0.5% in September. The preliminary reading for October was 1.1%.
US statistics from November 16 to November 20
U.S. economic information was also limited and overshadowed by the economic impact of the pandemic.
Retail sales in October fell short of expectations after five strong months, increasing 0.3% on a forecast of 0.5% and September was revised to 1.6% from 1.9%. Non-auto sales increased 0.2% with a projection of 0.6% and the September result was reduced from 1.5% to 1.2%. The control group added 0.1% on a forecast of 0.5% and its previous one was revised to 0.9% from 1.4%.
Industrial production added 1.1 %% in October, roughly the forecast of 1.0%, while September was revised to -0.4% from 0.6%. Capacity utilization rose to 72.8% from 72% in October.
The residential construction industry remained strong. Building permits were unchanged at 1.545 million in October, and housing starts rose to 1.53 million from 1.459 million annualized.
Initial jobless claims soared to 742,000 in the week of November 13, from 711,000. This was the first increase in nine weeks and highlighted concerns that pandemic restrictions imposed in several states result in layoffs. Continuing claims fell to 6.372 million the week of November 6, from 6.801 million previously.
Existing home sales, 90% of the US market, rose 4.3% in October to an annualized rate of 6.85 million. This was the highest sales rate since the real estate bubble of more than ten years ago.
Statistics of Canada 23 November-27 November
There are no statistics this week
US statistics from November 23 to November 27
In the plethora of US data arriving Wednesday, doubled for the Thanksgiving holiday that follows Thursday, initial jobless claims take priority. The unexpected increase of 31,000 last week may have been the first notice of a new round of layoffs due to trade restrictions imposed in many states or it may be a normal variation. If it is seconded by another rise, look for markets to get it out of the dollar.
Markit’s manufacturing and services PMI for November should confirm sentiment is leveling off – 53 in manufacturing versus 53.4 in October and 55.5 in services versus 56.9.
Durable goods orders for October are expected to rise 1% after the 1.9% increase in September. Durable goods orders excluding transport are expected to increase by 0.4% after 0.9% in September. Orders for non-aircraft non-defense equipment are expected to rise 0.5% in October. They increased by 1% in September.
Personal income in October is expected to increase 0.1% from 0.9% previously and personal spending 0.4% after rising 1.4% in September.
Initial jobless claims during the week of November 20 are expected to fall to 725,000 from 742,000. Continuing claims stood at 6.372 million the week of November 13.
Third-quarter annualized GDP is expected to remain unchanged at 33.1% when last revised.
New home sales are forecast to increase 1.8% in October to an annual rate of 970,000.
The Personal Consumption Expenditure Price Index rose 0.2% in September and 1.4% for the year. The Core PCE index should be stable in September and 1.4% over the year.
USD / CAD technical outlook
Technical indicators point lower, but none are convincing for sustained movement. The relative strength indicator climbed to 44.22 on Friday, but it is still a weak sell. All three moving averages are above the market. The 21 day average at 1.3139 fronts resistance at 1.3150. The 100 days at 1.3256 leads the line to 1.3275 and the 200 days is irrelevant at 1.3534.
The downward channel, fewer and weaker support lines, and the lack of a competitive scenario are the main reasons for the low downward bias.
Resistance: 1.3150; 1.3200; 1.3275; 1.3330
Support: 1.3050; 1.3000; 1.2955
USD / CAD Forecast Survey
The FXStreet forecast poll reflects the lower immediate bias and limited power. Compared to last week’s forecast of 1.3226 in the one-month outlook, the single-digit decline to 1.3126 illustrates the potential economic impact of the rising number of viruses in the United States. The almost identical view to a quarterback is a picture of uncertainty as to when a strong recovery will begin. The consolidation during the holidays seems to be in order.