The Canadian dollar against the US currency received support from yesterday's important macroeconomic report. In view of this, it returned to the area of the 28th figure, indicating the risk of long positions. Simultaneously with the strengthening of the Canadian dollar, the US dollar began to lose its positions throughout the market. This combination of fundamental factors allows the USD/CAD bears to count on the continuation of the downward trend.
Let's start with macroeconomic statistics. The key data on Canada's economic growth was released yesterday. All components of the release came out in the "green zone", that is, better than expected. The volume of GDP increased by 0.4% in monthly terms and to -3.5% in annual terms. The structure of the release suggests that most (16 out of 20) industries showed positive dynamics. In particular, the production of goods increased by 0.1% and the component of the provision of services increased by 0.5%. On the one hand, the Canadian economy shows weaker growth during the summer period. But given the second wave of the coronavirus crisis, the above result is more than acceptable, since most experts predicted a more gloomy outlook.
It should be recalled that last Friday, Canada published quite good data on retail sales. The indicator rose by 0.4% against the forecasted zero growth. The indicator has been growing for the sixth month in a row, reflecting the consumer activity of Canadians. In addition, key data on inflation growth was also published last week. The indicators reflected the positive dynamics of inflationary processes, failing to justify the pessimistic forecasts of most analysts. In monthly terms, the consumer price index remained in the positive zone (+ 0.1%), while it continued its upward trend in annual terms, rising to 1%. This component has been growing for the third month in a row.
In other words, Canada's main macroeconomic indicators allow the USD/CAD bears to control the attack of dollar bulls. At the same time, the growth of the US currency is solely due to the growth of anti-risk sentiment in the market. However, the markets have begun to recover today. The panic moods associated with the new COVID-19 strain are gradually subsiding, as all discovered variants of COVID-19 can be contained by vaccination. This fact neutralized the panic, after which the US dollar began to slow down throughout the market.
At the moment, the market is waiting for the denouement of another intrigue regarding the prospects for Brexit. According to rumors circulating, the parties can sign the trade deal today, which is within the next few hours. If these rumors are confirmed, the US dollar will be under additional pressure, since it is mainly used as a protective asset. If optimism prevails on the market, traders will show more interest in risky and commodity currencies, which include the Canadian dollar.
In general, the fundamental outlook contributes to the continuation of the downward trend in the USD/CAD pair. The current growth of the pair can be viewed as a large-scale correction after a prolonged decline. Here, it is necessary to emphasize again the fact that the US currency is strengthening solely due to the growth of anti-risk sentiment in the market, while many fundamental factors (US macroeconomic reports, the Fed's dovish intentions, the uncertain situation regarding incentives) play against it. Therefore, as soon as general risk appetite returns to the market, USD/CAD bears will take the advantage.
The Bank of Canada also provides background support to the Canadian dollar, which made it clear during its final meeting this year that it is ready to maintain a wait-and-see attitude. Moreover, the head of the Canadian regulator stated in one of his speeches that negative interest rates would make the country's economy suffer. A little later, he added that the bar for applying negative rates has been raised extremely high. All this suggests that the Bank of Canada is not going to move in the negative zone, especially amid the recent macroeconomic data.
From a technical viewpoint, the USD/CAD pair on the daily chart is trading on the middle line of the Bollinger Bands indicator, which is below all the lines of the Ichimoku indicator (including under the Kumo cloud) except for the Tenkan-sen line. If the pair drops below 1.2815, it will be between the middle and lower lines of the Bollinger Bands indicator. As a result, the Ichimoku indicator will form one of its strongest bearish signals – Parade of Lines. In this case, it will be possible to open short positions to the support level of 1.2700 (lower line of the Bollinger Bands on the same time frame).