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USD/CAD. Buy but be careful: the price "ceiling" - 1.3610

Last week, the Canadian dollar fell against a basket of major currencies, responding to the dovish results of the Bank of Canada's April meeting. The USD/CAD pair followed the general trend and rose to an annual high of 1.3520. But the upward impulse turned out to be short-term - on Friday, the loonie settled within the framework of the 34th figure and consolidated throughout the market. This dynamic is due to two factors: firstly, this is a general weakening of the US currency, and secondly, the growth of the oil market amid threats from Iranians to block the Strait of Hormuz.


In addition, the loonie is in anticipation of important events of a fundamental nature: tomorrow (April 30) data on the growth of the Canadian economy and the index of prices for raw materials will be published. In addition to macroeconomic reports, traders will monitor the rhetoric of the head of the Bank of Canada, Stephen Poloz, who will report to members of the Committee on Finance of the House of Commons. Also, we should not forget that the current week is also full of events for the US dollar: the outcome of the Fed meeting and Nonfarm figures may affect the position of the greenback, thereby affecting the configuration of the USD/CAD pair. In other words, the loonie froze in anticipation of key events that will determine the pair's future fate.

It should be immediately noted that the forecast for Canadian GDP growth is negative. The consensus forecast suggests that on a monthly basis, the Canadian economy will slow to zero, and in annual terms to 1.4% (after a 1.6% increase in January). Such results will disappoint, but are unlikely to surprise investors, given the forecasts voiced at the last meeting of the Canadian regulator. GDP growth in the last quarter of last year was revised to 0.4% (from the previous 1.3%), and the forecast for growth in the first quarter of this year to 0.3% (from the previous 0.8%). The forecast of economic growth in the current year was also revised downwards - from 1.7% to 1.2%. According to members of the central bank, the Canadian economy is slowing down due to lower growth in the housing market and a general decline in consumer confidence. In particular, the average cost of housing fell by almost 6% last year due to lower demand and more strict and complex rules for obtaining mortgage. Other structural elements of GDP still show negative dynamics: the volume of investments in the Canadian economy, investment in real estate and new projects is decreasing.


In other words, with a high degree of probability, tomorrow's release will be at a forecast level or even weaker than projections. This fact can provoke the USD/CAD pair's growth, but in this case, long positions should be treated with caution. From the point of view of technical analysis (which we will discuss below), the pair has potential for growth to the resistance level of 1.3610 (the upper line of the Bollinger Bands indicator on the weekly chart). If data on the growth of the Canadian economy comes out worse than expected, the loonie may jump to this target in an impulsive manner. But the pair's further dynamics will largely depend on the "well-being" of the US currency. If the outcome of the April Fed meeting is disappointing (which is very likely, given the recent inflation releases) and the Nonfarm data will be weaker than expected, the USD/CAD bulls will not be able to keep the pair in the 36th figure. Even the 35th mark in this case will be questionable, since the market has already taken into account the April meeting of the Bank of Canada and focused on US events.

Stephen Poloz, who is set to speak before the deputies of the House of Commons for two days, will most likely repeat the rhetoric he voiced last week. He can comment on published data on GDP growth, but his words are unlikely to change the overall situation for the pair. Let me remind you that during its last meeting, the Bank of Canada removed a phrase about the future overnight rate increase from the text of its accompanying statement. The market has already "digested" this fact, so another reminder from Poloz will not affect the dynamics of USD/CAD.

Thus, the USD/CAD pair has the potential for further growth, but this growth is limited by the price ceiling of 1.3610. Considering the preliminary forecasts, purchases with the first target of 1.3485 (the top line of the Bollinger Bands on the daily chart) can be considered from the current positions. In the long run, the motion vector of the pair depends on the greenbacks' dynamics, therefore, price growth above the bottom of the 36th figure looks unlikely.


In a technical point of view, the USD/CAD pair is still in an uptrend on all the "higher" time frames - D1, W1 and MN. In particular, the price is between the middle and upper lines of the Bollinger Bands indicator on the daily chart, which shows an expanded channel. The Ichimoku indicator has formed one of its strongest signals - the bullish Parade of Lines. In addition, the pair is located above the Kumo cloud, which also indicates the upward direction of the price. As already mentioned above, the highest resistance level is seen at 1.3610 - this is the top line of the Bollinger Bands on the weekly chart.

The material has been provided by InstaForex Company -