USD/CAD below important resistance
By Mark Jensen
USD/CAD keeps trading below the resistance line since March maximum which is currently in the 1.0750 area. As long as the pair’s trading below 1.0790 (or even 1.0800 for a more psychological level), the outlook is bearish. Although the downtrend is slowly narrowing, it still has some power.
A report released yesterday showed that the Canada’s retail sales rose in May for a second month (+0.7%), though the core reading increased less than expected (+0.1% vs. the forecast of +0.3%). This release follows a report last week that showed consumer prices climbed the fastest in more than 2 years in June (by 2.4% that is above the Bank of Canada’s 2% target). These data would normally make investors buy CAD expecting hawkishness from the BOC, but the regulator left the benchmark rate at the low level of 1% last week and said that the increase in inflation is temporary curbing demand for CAD.
Yields on Canada’s benchmark 10-year government bonds touched a 13-month low and are currently below the American ones. Still, higher inflation in Canada and lower in the US for now prevent USD/CAD from breaking higher.
10-year bond yields in the US (green) and in Canada (orange)
Support lies at 1.0700 ahead of 1.0650, while resistance is at 1.0750, 1.0790 and 1.0820. At this point testing of 1.0650 seems likely. At the rest part of the trading week the pair will depend on the economic data releases in the United States. Good data from the US this and the next may empower the bulls to test higher levels.