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Pending Release of Canadian Inflation Data

8/16/2022 2:14 PM

USD/CAD started the week with active growth and by now has reached the level of 1.2930.

On Monday, the Canadian currency came under pressure after the release of Chinese data. Weak growth in Production volumes (by 3.8% vs. 4.6%) and Retail Sales (by 2.7% vs. 5.0%) reinforced market concerns about a possible global economic downturn that could hit fuel demand. As a result, oil prices, one of Canada's key export commodities, fell, and following them, the national currency lost a significant part of its positions.

Today, USD/CAD quotes are consolidating around 1.2900, as investors await the publication of July data on the Consumer Price Index in Canada. Inflation growth is expected to slow down on a monthly basis from 0.7% to 0.1%, and from 8.1% to 7.6% on an annualized basis. The realization of these forecasts may act as a catalyst for reducing the pace of interest rate adjustment from 75 to 50 basis points at the next meeting of the Bank of Canada.

The US dollar looks generally more attractive than its Canadian competitor so far, as the US economy continues to withstand the pressure of the global crisis thanks to a strong labor market. At the same time, the slowdown in inflation from 9.1% to 8.5% does not mean that the US Federal Reserve has given up on tightening monetary policy. Experts expect the regulator to continue a serious increase in interest rates, which will support the position of the US currency.

USD/CAD continues to trade within a wide ascending channel. Now the price is close to 1.2939 (Murray [2/8], Fibonacci retracement 38.2%, the upper line of Bollinger Bands), consolidation above which will allow quotes to continue the uptrend to 1.3061 (Murray [3/8]), 1.3183 (Murray [4/8]). If the center line of Bollinger Bands is broken down near 1.2850, the decline will be able to resume to the levels of 1.2695 (Murray [0/8]), 1.2630 (the lower border of the ascending channel).

Technical indicators don't give clear signals, illustrating the uncertainty of the market before the release of the macroeconomic statistics: Bollinger Bands are directed downwards, Stochastic has reversed upwards, and MACD histogram is stable in the negative zone.

Resistance levels: 1.2939, 1.3061, 1.3183. | Support levels: 1.2850, 1.2695, 1.2630.

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