USD/CAD Forecast: Free-falling Canadian Dollar at the mercy of Trump

• The Canadian Dollar had another terrible week, extending its trade-related falls.
• Canadian GDP stands out on a light calendar, but Trump remains at center stage.
• USD/CAD expected to correct lower after hitting a fresh YTD high, according to FXStreet Forecast. Poll.

This was the week: Trade weighs on the loonie

There was no relief for the Canadian Dollar well after the G-7 Summit in which Trump and Trudeau clashed. The news that the US is considering hitting China with a 10% tariffs on $200 billion of goods had a temporary adverse impact on stock markets but a more painful one on the Canadian Dollar.

Canada heavily depends on exports to the US and Trump's heavy-handed approach hurts the nation more than any other one. Trudeau said that Trump's policies hurt the US economy, but it seemed to fall on deaf ears. NAFTA talks are now on hold ahead of the Mexican Presidential Elections on July 1st. 

In the US, Fed Chair Powell reiterated his optimism about the US economy while various housing figures mostly came out in line with expectations. 

Canadian inflation and retail sales released this Friday add to CAD's weakness, as May CPI was up by just 0.1% monthly basis and by 2.2% YoY, missing market's expectations and also below April readings, while retail sales unexpectedly fell 1.2% in April, with the core figure printing a tepid -0.1%

Canadian events: GDP, the BOC survey, and trade of course

The Canadian calendar of events is concentrated on Friday, with the monthly GDP report standing out. The economy enjoyed a growth rate of 0.3% MoM in March, concluding Q1. The upcoming report provides insights into the second quarter. Also, the Raw Materials Price Index may be of interest as Canada exports raw materials.

The Bank of Canada's Business Outlook Survey is the last event of the week. In the past, the BOC used the publication to convey messages about changes to its monetary policy. Stephen Poloz and co. could do it again, perhaps cooling expectations for a hike in July amid growing concerns about trade.

Here is the Canadian calendar for this week.

US events: Core PCE, GDP, and Durable Goods Orders

Wednesday sees an update on Q2 growth via the Durable Goods Orders. The core figure rose by 0.9% last time, and another increase would support the US Dollar.

On Thursday, we will receive the final GDP number. Q1 growth has been weaker than beforehand, but this is normal for the initial quarter of the year. The US annualized growth stood at 2.2% according to the second release. 

On Friday, the Fed's favorite inflation measure, the Core PCE Price Index is set to pick up on a yearly basis, moving to 1.9%. This is based on the increase in Core CPI. 

It is also important to note that Friday is the final trading day of the month and the quarter so that last-minute jitters could be seen.

Here are the critical American events from the forex calendar: 

 

USD/CAD Technical Analysis 

The Relative Strength Index shows that the pair is in the overbought territory. Is it set to fall? On the other hand, Momentum is bullish, and the pair broke above two significant uptrend resistance lines. The USD/CAD is trading way above the 50-day Simple Moving Average and the 200-day one. 

1.3350 capped the pair in June 2018. 1.3380 was a swing low back in May last year, and far above, 1.3550  was a stubborn cap on several occasions in the spring of 2017. The next line to watch is already much higher: 1.3790, which dates back to early 2017.

1.3280 is a veteran line from early 2017. 1.3160 was a swing low in June 2018, and 1.3125 was a high point back in March this year. The round 1.3000 level still plays a role. It held the USD/CAD down in the past. Lower, 1.2920 is notable. 

USD/CAD sentiment poll

Market's view on the USD/CAD pair suggests that it may have reached a top, as sentiment is clearly bearish for the upcoming three months. After hitting a fresh YTD high of 1.3381, the corrective movement is seen moderated for this upcoming days, targeting in average 1.3302 next week with bears being a majority with 41.%. Monthly basis, the number of bears increases to 65% from the previous 54% but the average target has been upgraded from 1.2931 to 1.3031. The Overview chart shows that moving averages are clearly bullish in the three time-frame under study, with the largest accumulation of targets well above the current level at around 1.3500 in the weekly and monthly views, while in the longer one, is quite well divided between bulls pointing to 1.3600 and bears aiming for 1.2800. 

Where next for USD/CAD?

The week after week deterioration in the relations between Canada and the US does not bode well for the loonie. The pair could continue to higher ground.

More: Trump's trade wars: fighting on three fronts cannot keep markets calm for too long, and it could turn ugly

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