The Canadian dollar flexed some muscle last week, as USD/CAD dropped 1.9%. The loonie’s strong performance erased most of the currency’s losses from December. Will the surprising rally continue? This week’s highlight is the BoC rate statement, with the bank expected to raise rates. Here is an outlook for the highlights of this week and an updated technical analysis for USD/CAD.

The swings in the equity markets continue, but investors appear to have regained confidence, at least for now. There is renewed hope that trade tensions between the U.S. and China could ease, as trade teams from the two countries will meet this week. Higher risk appetite has been good news for the Canadian dollar, which managed to reverse six straight weeks of losses.

Canada posted solid employment numbers for December. The economy created 9.3 thousand jobs, above the estimate of 6.8 thousand. As well, the unemployment rate stayed pegged at 5.6%, edging below the estimate of 5.7%.

USD/CAD daily chart with support and resistance lines on it. Click to enlarge:

1. Ivey PMI: Monday, 15:00. This indicator has pointed to strong expansion in recent readings. The PMI dipped to 57.2 in November, but is expected to improve to 58.1 points in December.
2. Trade Balance: Tuesday, 13:30. Canada has posted only one trade surplus in 2018, as the global trade war has taken a bite out of Canadian exports. Another deficit is forecast for November, with an estimate of C$-1.9 billion.
3. Housing Starts: Wednesday, 13:15. The housing sector has been steady, with readings above the 200- thousand level for most of the second half of 2018. The December estimate stands at 210 thousand.
4. BoC Rate Statement: Wednesday, 15:00. This is the key event of the week and should be treated as a market-mover. Analysts expect the Bank of Canada to raise interest rates to an even 2.00%, which could give the Canadian dollar a slight boost.
5. Construction Data: Thursday, 13:30. The week will wrap up with two minor events, Building Permits and the New Housing Price Index. These indicators are unlikely to have much impact on the direction of USD/CAD.

*All times are GMT

USD/CAD Technical Analysis

USD/CAD dropped sharply last week, posting three straight daily declines. The pair broke through support at 1.3385 (mentioned last week).

Technical lines from top to bottom:

We begin with resistance at 1.3757. 1.3645 provided support when the pair traded higher in early 2017. 1.3560 capped $/CAD in May 2017. Next, 1.3445 was the peak in early December.

1.3385 was the high point seen in May. 1.3350 was a stepping stone on the way and on the way down around the same time.

1.3320 was the high point in late November. Lower, 1.3265 was the high point in mid-November. 1.3225 played a role in capping USD/CAD back in September.

1.3175 was a swing low in late November. It is followed by 1.3125 which was also a low point, earlier in the month.

Below 1.3000 we find the late-October trough of 1.2970. 1.2880 was a double-bottom in September and in August.

I remain bullish on USD/CAD

Investor risk appetite remains strong, even with the Apple debacle. The BoC is widely expected to raise rates, which indicates a vote of confidence in the Canadian economy. This could help boost the currency.