The Canadian dollar paired with the US currency reached a semi-annual price peak of 1.3560 on Friday but the USD/CAD pair did not succeed in developing the northern trend. The weakness of the greenback, as well as quite good data on GDP growth in Canada, returned the pair to the region of the 34th figure within the range of 1.3480-1.3520, where the price fluctuated throughout the past week.
For this week, the most important statistics from Canada will only be released on Friday. Aside from the non-pharm, we will learn data on the growth of the Canadian labor market. Therefore, now, the Loonies will follow the greenback at least until the end of the five-day trade, which in turn is going through hard times. Reacting to the dynamics of treasures, the US dollar recognized its vulnerability to the events of the external fundamental background in the context of Trump's latest decisions. On Monday, the yield on 10-year government bonds continued to decline at the start of trading, updating at least to 2,121 which was last seen in August 2017. For comparison, last fall, the yield was at its peak in the region of 3.220.
The yield curve of US government bonds with terms of 3 months and 10 years was inverted at the end of March for the first time since 2007. That is, before the onset of the global financial crisis. Last week, the market panicked again, "thanks to" the signals of the impending recession and the growing US trade conflict not only with China but also with Mexico. In addition, last week it became known that Washington could spoil relations with another major trading partner - India. The White House has threatened to deprive this country of the status of a state with a developing economy. After that, India will not be able to export more than two thousand commodity items to the States duty-free. The prospect of a trade war on the "three fronts" worries trader but not only the foreign exchange market. The stock market also closed the trading week with a significant decrease.
In such circumstances, the US dollar can not act as a defensive asset. Although earlier, greenback "skimmed the cream " during periods of global tension as they take advantage of increased demand. Yet, the expected collapse of the US stock market with the subsequent reaction of the Fed in the form of a rate cut of 25 basis points makes the dollar quite vulnerable.
The dollar pairs react differently to the situation. The euro-dollar pair "allowed" itself a correctional growth while the pound-dollar pair remained almost in place. The dollar-yen collapsed to annual minimums. Meanwhile, the Canadian dollar together with the greenback reacts modestly. The problems of the American currency: firstly, it allowed us to extinguish the northern impulse of the USD /CAD pair. Secondly, it provoked a corrective price decline to the level of 1.3490. The closest support level for the pair is at 1.3460 and at this price point, the BB line coincides with the Tenkan-sen and Kijun-sen lines on the daily chart. The next support level is 1.3400, which is the bottom line of the Bollinger Bands that coincides with the upper boundary of the Kumo cloud on the same timeframe. The resistance level is the price maximum of 1.3560. In other words, this is most likely for the pair before the end of the week.
Own arguments for substantial growth or decline is not apparent for in Canadians. The Bank of Canada left a controversial impression following the May meeting. On the one hand, the regulator said that the decline in the Canadian economy is in the nature of a temporary phenomenon. Stephen Poloz noted an increase in consumer spending and positive export trends. He also focused on the growth of the labor market and the level of average wages. On the other hand, Poloz stressed that the risks from world trade increased, as well as the tension between Canada and the USA increased.
Uncertain prospects for global economic growth are a central issue for the Central Bank, thus, the head of the regulator did not bother the market with "hawkish" intentions. In general, the Bank of Canada will continue to hold a wait-and-see position while the monetary policy outlook will depend on the incoming data. According to the general expectations of the regulator, the key macroeconomic indicators of Canada will show a positive trend in the second half of this year, literally, a day after the May meeting in Canada published data on the growth of the economy. They turned out to be better than expected. the GDP indicator rose to 0.5% in monthly terms (the best result since last May) and to 1.3% in annual terms. Other equally important indicators also rose, for example, the price index for raw materials jumped immediately to 5.6%, reaching a multi-year high.
Thus, Macroeconomic statistics allows Canadians to "stay afloat" but the events of the external fundamental background puts pressure on the loonie. Hence, the dynamics of the USD/CAD pair will be determined by US events, as well as the behavior of the US dollar.
