FX Week Ahead - Top 5 Events: July Canada Inflation Report & USD/CAD Rate Forecast

08/21 WEDNESDAY | 12:30 GMT | CAD CONSUMER PRICE INDEX (JUL)

A Bloomberg News survey shows consensus forecasts pointing to a moderation in price pressures. Headline July Canada inflation due in at 1.7% from 2.0% (y/y), while the monthly reading is due in at 0.2% from -0.2% (m/m). It still holds that movement in energy markets will guide the Canadian Dollar and inflation all the same.

BANK OF CANADA INTEREST RATE EXPECTATIONS (AUGUST 16, 2019) (TABLE 1)

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But with global markets enflamed by the US-China trade war, even if Canadian CPI figures are oscillating around the Bank of Canada’s medium-term target, traders have started to pull forward expectations of easing. The September BOC meeting has a 28% chance of a 25-bps rate cut, according to overnight index swaps. But there is a 66% chance of a rate cut at the October BOC meeting, and a 73% chance of a 25-bps rate cut by the end of 2019.

Pairs to Watch: CADJPYEURCADUSDCAD

USDCAD TECHNICAL ANALYSIS: DAILY PRICE CHART (AUGUST 2018 TO AUGUST 2019) (CHART 1)

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The path of least resistance for USD/CAD remains higher if crude oil prices are going to struggle further. Price has climbed back towards last week’s resistance near the 23.6% retracement from the September to December 2018 high/low range as well as the 38.2% retracement of the 2018 high/low range around 1.3225/30. With USD/CAD continuing to trade above the daily 8-, 13-, and 21-EMA envelope, daily MACD having risen above its signal line in bullish territory, and Slow Stochastics issuing a buy signal above the neutral line, it appears that the next leg higher for USDCAD is around the corner.

IG CLIENT SENTIMENT INDEX: USDCAD PRICE FORECAST (AUGUST 16, 2019) (CHART 2)

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USDCAD: Retail trader data shows 33.3% of traders are net-long with the ratio of traders short to long at 2.0 to 1. In fact, traders have remained net-short since July 23 when USDCAD traded near 1.3125; price has moved 1.3% higher since then. The number of traders net-long is 14.6% higher than yesterday and 6.5% lower from last week, while the number of traders net-short is 0.6% lower than yesterday and 17.1% higher from last week.

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