USD/CAD Tests the 200-Day SMA Ahead of the Canadian Retail Sales Report
Retail sales in Canada are expected to advance for the fourth time in the past five months, according to the median estimate of 19 economists surveyed by Bloomberg News. Sales are forecasted to rise 0.4 percent after falling 2.0 percent the previous month. Specifically, market participants will keep a close eye on the breakdown of the report, with particular interest in motor vehicle and sales at clothing outlets which weighed heavily on retail sales last month. The decline in April was a mere speed bump as Canada is very strong fundamentally. Employment has risen for the sixth consecutive month in June, while the unemployment rate is at its lowest level since January 2009. Meanwhile, leading indicators recently rose1.0 percent. This is of great importance in that movements in leading indicators precede larger developments in the rest of the economy. Thus, with employment continuing its northern journey, while leading indicators increases, and economic activity in the first quarter posting its strongest advance in more than a decade, investors should not rule out a surprise in retail sales to the upside.
Meanwhile, the Bank of Canada hiked rates twenty five basis points yesterday. The rise in the key overnight lending rate marks the second straight monthly gain in borrowing costs. However, trailing comments suggested that the central bank will likely opt for monetary policy normalization in measured steps. On the other hand, the BoC lowered their growth forecast for this year from 3.7 percent to 3.5 percent, and went onto add that business investment has been held back by the global outlook. Therefore, CAD traders should not overlook a release in retail sales in line or below economists’ expectations as the central bank believes that economic activity will slow this year.
USD/CAD: After retreating from the 61.8 percent Fibonacci retracement on the 5/25, 6/21 downswing, price action looks to have stalled above the 200-day SMA, which also stands to be the 38.2 percent Fibonacci retracement. Indeed, a break below this level will expose 1.0308 and the rising trend line which has remained intact since April of this year.
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Written by Michael Wright, Daily FX Research
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Michael Wright is the author of FX Headlines, Fundamentals vs. Technical's, Weekly Spotlight, and Forex Trading Weekly Forecast
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