USD/CAD pulls back on US, Canada data releases

<p>USD/CAD (daily chart shown below)  retreated on Wednesday from its key resistance target around the 1.3200 price level after a series of economic data points […]</p>

USD/CAD (daily chart shown below)  retreated on Wednesday from its key resistance target around the 1.3200 price level after a series of economic data points were released in both the US and Canada.

In the US, according to ADP, the private sector showed an increase of just 185,000 jobs in July against expectations of a 216,000 increase. In addition, the US trade deficit widened in June by 7.1 percent to $43.8 billion, against expectations of a $42.8 billion gap. Both of these data points implied some obstacles to economic growth in the US, and served to place moderate pressure on the US dollar on Wednesday morning.

At the same time, trade balance figures from Canada showed its deficit narrowing from $3.4 billion in May to less than half a billion in June. The major portion of exports from Canada are purchased by the US. Prior expectations were for a less dramatic narrowing of the deficit to $2.8 billion in June. This positive data release helped to provide a lift to the Canadian dollar.

USD/CAD Daiy Chart

 

Together, these data points prompted a retreat for USD/CAD after an entire week of substantial gains. Since the modest pullback in late July, the currency pair has been on a sharp incline based mainly upon US rate hike expectations and further weakness in crude oil. This combination of factors prompted a rise from below the 1.3000 psychological level to the pair’s upside target at 1.3200 resistance, which was initially hit on Tuesday. In the process, USD/CAD has again established close to an 11-year high.

From a longer-term perspective, USD/CAD has been trading for the past year within a strong bullish trend framed by a well-defined uptrend line extending back to July of last year. That trend line was tested on a pullback in mid-June, but for more than a month, USD/CAD has advanced almost unceasingly to its current heights.

Despite Wednesday’s pullback, with the US dollar continuing to strengthen on rate hike anticipation and with crude oil continuing to be pressured by persistent oversupply conditions and production levels, USD/CAD could well have further upside before making any substantial pullback or correction.

With any sustained breakout above the 1.3200 resistance level, the next major upside target is at the 1.3400 level. To the downside, any further pullback should find key support around the noted 1.3000 psychological level.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.