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USD/CAD Weekly Fundamental Analysis, August 17 – August 21, 2015 Forecast

James Hyerczyk
Weekly USD/CAD
Weekly USD/CAD

Weekly Analysis and Recommendations: The USD/CAD finished lower last week, ending a streak of seven consecutive higher closes. The Forex pair also diverged from crude oil prices which closed at a six-year low. Gold prices rallied last week which could’ve accounted for the .0043 decline. 

The recent break from 1.3212 on August 5 to 1.2951 on August 12 is more interesting to analyze because it covers the time period when the U.S. ADP Private Sector Employment report and the U.S. Non-Farm Payrolls report were released This price action suggests that bullish traders may have lightened up on the long side because these reports weren’t strong enough to support a September rate hike by the Fed. 

Supporting this conclusion is the steep break from 1.3181 on August 10 to 1.2951 on August 12. This sell-off corresponded with bearish comments from Federal Reserve Vice Chairman Stanley Fischer who suggested on Monday, August 10 that a September rate hike by the central bank is not a done deal. This comment may have been enough to encourage long investors to take a little bit off the table after rallying from 1.2127 the week-ending June 19 to 1.3212 the week-ending August 7. 

Bullish investors shouldn’t be too concerned about the weakness last week. There is no indication of a change in trend, however, we could be looking at a short-term top. The good thing is this will drive the market into a value zone which should be beneficial to investors looking to add to their bullish positions. 

Fundamentally, the deck is stacked against the Canadian Dollar. Crude oil prices are crashing along with other commodities and the U.S. Dollar has been described by some as “super-strong”. Additionally, the Fed may not raise rates in September, but the U.S. economy is still on track for a rate hike by the end of the year. 

Since the Canadian Dollar is a commodity currency, it has been suffering from the extremely bearish commodity markets – namely gold and crude oil. This has put the economy on the brink of recession, led by declining manufacturing and falling home prices. 

Because the fundamentals have been relatively “easy” to follow and thus easy to maintain bullish USD/CAD positions, the market has been saturated with long positions. With “real money” guilty of making a massive bet against the Canadian Dollar, overbought conditions as determined by the Commodity Futures Trading Commission’s Commitment of Traders report suggests that the market may be ripe for a short-term sell-off. 

The USD/CAD may see additional selling pressure this week if long investors continue to book profits. Aggressive traders may want to explore the short side but keep in mind that this will be trading against the dominate trend and risky. The best bet is to play the long side but on your terms. In other words, let the Forex pair correct into a value zone.

Look for increased volatility on Wednesday with the release of the U.S. consumer inflation report. This report is important because along with labor data, this is a key factor the Fed will be using to base its interest rate decision. The release of the latest Fed minutes on Wednesday is also likely to be a market moving event because investors will learn more about the Fed’s thought process before the critical September FOMC meeting. 

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks. 

Weekly USD/CAD

Reports to Watch This Week:

             Date                     Time               Curr                                        Events                                                 Forecast  Previous

Mon Aug 17

 8:30am ET

CAD

 

Foreign Securities Purchases

     

-5.45B

 
   

USD

 

Empire State Manufacturing Index

   

5.0

3.9

 

Tue Aug 18

8:30am ET

USD

 

Building Permits

   

1.21M

1.34M

 
   

USD

 

Housing Starts

   

1.20M

1.17M

 

Wed Aug 19

8:30am ET

USD

 

CPI m/m

   

0.2%

0.3%

 
   

USD

 

Core CPI m/m

   

0.2%

0.2%

 
 

10:30am ET

USD

 

Crude Oil Inventories

     

-1.7M

 
 

2:00pm ET

USD

 

FOMC Meeting Minutes

         

Thu Aug 20

2:45am ET

USD

 

FOMC Member Williams Speaks

         
 

8:30am ET

CAD

 

Wholesale Sales m/m

   

0.2%

-1.0%

 
   

USD

 

Unemployment Claims

   

272K

274K

 
 

10:00am ET

USD

 

Philly Fed Manufacturing Index

   

7.2

5.7

 
   

USD

 

Existing Home Sales

   

5.45M

5.49M

 

Fri Aug 21

8:30am ET

CAD

 

Core CPI m/m

     

0.0%

 
   

CAD

 

Core Retail Sales m/m

     

0.9%

 
   

CAD

 

CPI m/m

     

0.2%

 
   

CAD

 

Retail Sales m/m

     

1.0%

 
 

9:45am ET

USD

 

Flash Manufacturing PMI

   

53.5

53.8

 
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