- Investors brace for key US spending data.
- A rebound in US stocks supported the Canadian dollar on Thursday.
- Canadian retail sales rose 0.7% in October compared to September.
A bearish tone emerged for the USD/CAD outlook on Friday. The dollar, which is near a four-month low, held its breath ahead of a game-changing measure of US inflation. The core PCE report will provide valuable insight into the Fed’s deliberations on a potential rate cut next year.
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Notably, core US personal consumption expenditure data is the Federal Reserve’s favored gauge of core inflation. Expectations point to annual growth of 3.3% in the core measure, which is a slight decline from October’s growth of 3.5%.
Meanwhile, the Canadian dollar continued its recent gains against the US dollar, boosted by a rally on Wall Street on Thursday. As a result, there is pressure on speculators with significant short positions in the Canadian dollar.
“A recovery in US stocks prompted the dollar to give up yesterday’s gains.” So that pushed USD-CAD lower in the process,” noted George Davis of RBC Capital Markets. Notably, Wall Street clawed back much of the previous day’s losses as economic data boosted optimism about a potential Fed rate cut.
At the same time, speculators trimmed their bearish bets on the Canadian dollar, reducing positions that hit a six-year high in November.
Elsewhere, Canadian retail sales rose 0.7% in October from September, with even more significant growth in terms of volume. However, the preliminary estimate for November showed no growth.
USD/CAD Key Events Today
- Canada GDP m/m
- Core price index US PCE m/m
- US consumer sentiment
USD/CAD Technical Outlook: Downtrend extends to key 2,414 fib level
Despite weakness in the downtrend, USD/CAD made a new low, extending price to the key 2,414 fib level. However, the price remains near the 30-SMA, which is a sign that the bears are not as strong as they were when the move started. Moreover, the RSI made a larger bullish divergence, showing that the bearish momentum has weakened.
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With the bears weaker and the price finding strong support at the 2,414 fib level, the bulls could re-emerge for a pullback or reversal. Therefore, the price is likely to retest the 1.3350 level and the 30-SMA soon. A break above the SMA would confirm a bullish takeover.
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