The Canadian dollar reacted weakly to the release of key data on inflation growth in Canada. Despite a fairly strong report, the USD/CAD pair fell by literally 40 points. Such a phlegmatic reaction suggests that the Canadian continues to move in the wake of the US currency, which is waiting for Jerome Powell's two-day marathon in Congress.
Looking at the weekly chart, we will see that the USD/CAD pair showed a pronounced northern trend during the two weeks of June. Last Friday, it reached 1.3077, which is the price maximum since November 2020. As you know, the US dollar has strengthened its position throughout the market due to the hawkish position of the Fed. However, this week the northern trend has stalled. Buyers of USD/CAD could not hold the 30th figure, rolled back, and eventually got stuck within the 29th price level. The bears unsuccessfully tried to overcome the support level of 1.2900, the bulls of the pair could not break through the resistance level of 1.3000.
It is noteworthy that the Bank of Canada also maintains a hawkish position. However, the pace and scale of monetary policy tightening here are more modest and moderate. At the last meeting, the Canadian regulator raised the rate by 50 basis points. At the same time, the Central Bank made it clear that this is not the last increase. However, it is impossible to talk about long-term prospects here: the peculiar horizon of events here is limited to the July meeting, at which the regulator will certainly raise the rate by 50 points. The prospects look very vague so far.
Also, we must not forget that the latest data on Canadian GDP growth turned out to be much weaker than forecasts. Almost all components of the release were released in the "red zone", reflecting the slowdown in the country's economic growth. In the first quarter, the economy grew by 0.8% compared to the previous three months, (in the 4th quarter, growth was 1.6%). On an annualized basis, Canadian GDP grew by 3.1% after growing by 6.6% in the previous quarter. In this case, the result was disappointing: the majority of economists surveyed expected the indicator to grow by 5.4%. Real GDP grew by 0.7% (every month). Here, the indicator exceeded the forecast estimates (0.5%) but turned out to be weaker than the February result (0.9%).
In addition, recent trends in the oil market have also put pressure on the Canadian currency. The black gold market is actively declining after a recent sharp rise. The price of Brent crude oil has fallen below the psychological mark of $ 110 per barrel (for the first time since May 24), and WTI is trading around $ 102. The downward trend is intensifying against the background of the White House's plans to reduce sharply rising fuel prices. According to Reuters, the US presidential administration is putting pressure on the country's major energy companies to ease the problem for drivers during the summer travel season. In addition, according to Bloomberg, Joe Biden will make a statement today calling on the US Congress to repeal the gasoline tax (now it is 18 cents per gallon). Oil traders are also waiting for official data from the US Department of Energy on the reserves of oil, gasoline, and distillates in the country.
Thus, the more hawkish attitude of the US regulator, the weak report on Canadian GDP growth, and the decline in the oil market allow USD/cad buyers to dictate their agenda. The two-week consecutive price growth has stalled at the moment, however, in my opinion, the northern trend has not yet exhausted itself. However, it is advisable to open trading positions after Jerome Powell's speech in the US Congress tomorrow. Today, the head of the Fed is presenting a semi-annual report on monetary policy to the Senate Committee on Banking, Housing and Urban Affairs, and tomorrow – to the House Financial Services Committee. The market will closely monitor his rhetoric both today and tomorrow, so it is best to make trading decisions at the end of this two-day marathon. But in general, in my opinion, longs will be a priority in the medium term: it is unlikely that the Bank of Canada will tighten monetary policy at the same pace as the Fed. If Powell allows a 75-point rate hike in July and September during his speeches, the USD/CAD northern trend will resume with renewed vigor.
From the point of view of technology, the pair is in an ascending channel. The price shows a northern trend, which is confirmed by the Ichimoku indicator, which has formed its bullish "Line Parade" signal on the daily and weekly charts. Also, the price on some "older" timeframes (D1, W1, MN) is located between the middle and upper lines of the Bollinger Bands indicator, which is in the extended channel. Trend indicators are confirmed by the MACD oscillator, which is in the oversold area. The resistance level (the goal of the northern movement) is the upper line of the Bollinger Bands indicator on the daily chart, which corresponds to the price of 1.3070. In this price area, it would be advisable to lock in profits and take a wait-and-see position.
