USD/CAD Forecast May 18-22

The Canadian dollar fell 1.3% last week, erasing the gains seen in the previous week. USD/CAD closed the week just above the 1.41 level. The upcoming week features inflation and retail sales releases. Here is an outlook at the highlights and an updated technical analysis for USD/CAD.

Canada’s manufacturing sector slumped badly in March. Manufacturing sales plunged 9,2%, much worse than the estimate of -4.4 percent. Foreign securities purchases fell by C$ 9.7 billion in March, after an excellent gain of C$20.6 billion a month earlier.

In the U.S., inflation tanked in April, as the economy continues to buckle under the weight of the Corvid-19 pandemic. CPI declined by 0.8%, down from -0.4% a month earlier. The core read fell by 0.4%, down from -0.1% in the previous release. Both figures missed their estimates. Unemployment claims continue to fall and dropped below 3 million last week, with a release of 2.98 million. Still, this missed the estimate of 2.5 million. Retail sales were a bloodbath in April – the headline figure fell by 16.4%, while the core read declined by 17.2 percent. Analysts had projected declines of -12.0% for the headline and 16.4 for the core releases.

Expected fundamentals to move the pair in the next week:-

1. Inflation: Wednesday, 12:30. Consumer inflation fell by 0.6% in March, its sharpest decline since December 2014.  Core CPI slowed to 0.1%, down from 0.7% a month earlier. We now await the April data.
2. ADP Non-Farm Employment Change: Thursday, 12:30. The March release was a disaster, with a staggering drop of 177.3 thousand. Will we see an improvement in the April release?
3. Retail Sales: Friday, 12:30. Retail sales is the primary gauge of consumer spending. In February, the headline figure came in at a flat 0.0%, shy of the forecast of 0.3%. The core read edged lower to 0.3%, matching the estimate. Soft numbers for April could weigh on the Canadian dollar

Grasp from technical analysis

1.4480 was an important cushion in April 2000. 1.4310 is next.

1.4159 (mentioned last week) was under pressure last week as USD/CAD posted strong gains.

1.4019 is providing support.

The round number of 1.39 has some breathing room in support.

1.3757 is the final support line for now.

I remain bullish on USD/CAD

The outlook for the Canadian dollar remains negative in the near term. Economic conditions in Canada remain very weak due to Covid-19 and if this week’s inflation and retail sales miss expectations, USD/CAD could gain ground.