USD/CAD Fundamental Analysis – week of July 31, 2017

The USDCAD pair extended its losses during the last week but as we had mentioned last week and also in several of our forecasts over the last few days, the move down seems to be slowing down and we are seeing the buyers make more of a stand. There are also flickering signs of recovery in the dollar and these all add up to the notion that we could probably be seeing a large bounce from this region. The upcoming week will help us to answer that question.

USDCAD Continues Its Downtrend

Last week, much of the first half of the week was spent in consolidation and ranging as the market awaited the FOMC minutes in the middle of the week. There was a feeling that the minutes could be hawkish and support the dollar but when it came out, it was largely a disappointment. The minutes did touch upon the monetary policy and balance sheet but continued to be unclear on when the next rate hike would be. This led to another round of dollar selling which pushed the pair towards the 1.24 region.

On the next day, we got some unexpectedly strong data in the form of advance trade balance and this led to the belief that the trend of weak data from the US would be over and the market began to expect some strong GDP data. This led to a bounce in the USDCAD pair which pushed the pair above 1.25 and briefly threatened to continue into a large recovery of sorts. Though the GDP data from the US came in strong, the Canadian GDP data came in much stronger and the CAD strengthened all across the markets which meant that all the gains made on the previous day were melted away and the pair closed the week near its lows.

Looking ahead to the new week, it is going to be an interesting one with a slew of data including the employment reports from Canada and the US. The bulls have shown whether they stand and it would be upto the bears to break through. If we do break through the lows, then we should be looking much lower in the USDCAD, else we could see a large bounce from here.