USDCAD came off last week as the Loonie gained due to increased risk appetite in international asset markets, weakness in some U.S. jobs data releases and elevated gold prices approaching all time high levels. The pair started the week off by rallying sharply in response to the Canadian Current Account showing a -11.0B deficit versus the market's consensus for a -10.2B deficit. This disappointment was compounded further by the former number's downward revision from -7.8B to -8.5B. Nevertheless, the Canadian RMPI number increased by 1.8%, which was quite a bit better than the 0.3% result the market was expecting.

USDCAD continued moving upward on Tuesday after news came out that Canadian GDP had grown by 0.2%, in line with market expectations. Wednesday then saw USDCAD start dropping precipitously after the Greenback saw general weakness after the U.S. ADP Non-Farm Employment Change numbers came out considerably worse than expected. The important U.S. data showed a job loss of -10K which was significantly below the anticipated expected job gain of +20K. To make matters even worse, the preceding number was revised down to 37K from 42K. USDCAD then mostly range traded on Thursday as U.S. Initial Jobless Claims conversely showed some recent improvement in the U.S. employment picture.

Friday saw the rate then trade down in spite of an encouraging U.S. Non-Farm Payrolls number, as risk appetite increasingly permeated the international financial asset markets. The U.S. Non Farm Payrolls number had only fallen by -54K and this result was a considerable improvement over the larger -101K loss that had been anticipated. In addition, the former number was revised substantially upward from the -131K level to -54K. Furthermore, the U.S. Unemployment Rate held constant at the 9.6% level as the market had been expecting. USDCAD eventually closed for the week at 1.0390, showing a substantial loss of 1.2% compared with the previous weekly close.

Fundamental Outlook for USDCAD

The primary market-moving economic data releases and policymaker speeches scheduled for this week in Canada and the United States are as follows:

Canada:

The upcoming week of economic data due to be released in Canada warms up substantially versus the previous week. It features a variety of important Canadian data and includes the BOC's Rate Decision and associated Rate Statement due out on Wednesday that could well involve another interest rate increase.

Monday is quiet due to Canada's observance of the Labour Day Bank Holiday, and Tuesday also has nothing noteworthy due out.

As a result, Wednesday starts the important week with the release of Building Permits (-4.7% m/m) and Ivey PMI (55.9).

Wednesday also offers the highlighted BOC Rate Statement in which the Candian central bank is expected to raise its benchmark Overnight Rate by 25 basis points from 0.75% to 1.00%.

Thursday then follows with Canadian Housing Starts (185K), the Canadian Trade Balance (-0.8B) and NHPI (0.1% m/m).

Friday ends the active data week in Canada with the key Canadian Employment Change (23.9K) and Unemployment Rate (8.0%) data.

United States:

The upcoming calendar of economic data releases scheduled for the United States calms down significantly for the coming week, but it will still offer some significant information for the forex market to ponder. With respect to data, the coming week will feature the important U.S. Trade Balance number due for release on Thursday.

Monday begins the week on a quiet note as the United States observes its Labor Day Bank Holiday, and Tuesday is similarly quiet.

As a result, Wednesday begins the week with the scheduled release of the important Federal Reserve Beige Book, in addition to Consumer Credit (-4.5B m/m).

Thursday should provide the weekly highlight with the release of the U.S. Trade Balance (-47.4B), in addition to the significant Initial Jobless Claims number (470K).

Friday finishes the relatively quiet week, with only the release of Wholesale Inventories (0.4% m/m) scheduled.

Technical Outlook for USDCAD

On the technical front, USDCAD traded up as far as 1.0669 last Tuesday before coming off sharply to its 1.0383 low point. The rate then closing slightly higher at 1.0390 on Friday, showing a substantial overall drop of 1.2% compared with the rate's previous weekly close.

Furthermore, the rate now seems to have established a symmetrical triangular consolidation pattern delimited by a declining upper trend line now drawn at 1.0655 and a rising lower trend line currently drawn at 1.1054. The pattern's measured move objective of approximately 726 pips would arise from the major 0.9929 low of April 21^st to the subsequent 1.0853 reaction high seen on May 25^th. A breakout of the pattern in either direction should theoretically yield a move of that magnitude.

In addition, last week's price action has placed USDCAD's 14-day RSI in the lower central part of neutral territory at 46. This is now approaching the level of the rising trend line drawn on that indicator. Also, the medium term outlook for the pair has reverted to neutral since USDCAD has crossed back below the level of its 200-day Moving Average that now comes in at 1.0386 and has more or less flattened out.

With the rate having closed at 1.0390 last Friday, the chart for USDCAD now shows resistance at 1.0584, in the 1.0665/76 region and above that at 1.0742. Support for the rate shows up in the 1.0441/1.0516, 1.0347/85 and 1.0201/1.0253 regions ahead of psychological support seen at the key 1.0000 parity level.

The medium term scenario for USDCAD remains neutral pending a breakout from the aforementioned possible triangular consolidation pattern upon which a directional position could be taken.

From a short term perspective, the above technical scenario suggests the strategy of looking to trade the increasingly narrow consolidation range of the possible triangle. Traders doing so could also stop out such positions on a break of the pattern's trend lines and then look to establish positions in the direction of its future breakout for its ~726 pip measured move objective.

Note: Past performance is not indicative of future results.

Figure 1: Daily candlestick chart of USDCAD showing its 200-day MA in red, Bollinger Bands in green, Trend Lines in purple and the 14-day RSI in the indicator box in pale blue.