Fundamental Analysis

USD/CAD at a Critical Juncture Amid Trump Concerns, Canadian Data, OPEC Talks

Typography

USD/CAD has fluctuated around the key 1.3600 price level for the past three days as a weakened US dollar and volatile crude oil prices affecting the Canadian dollar have pushed and pulled on the currency pair. A decisive breakdown below 1.3600 support has not quite occurred yet (though it may be imminent), as shifting speculation over crude oil supply and the path of the US dollar amid Trump-driven political turmoil has kept USD/CAD in a relative state of flux.

On the very near-term horizon, key events will play an important role in USD/CAD's trajectory going forward. Though the US dollar gained back a bit of stability on Thursday after a sharp fall for much of this week, it should continue to be affected heavily by the dark political clouds that have formed over US President Trump. These clouds center on his administration's dealings with Russia and allegations that he could possibly be charged with obstruction of justice, a potentially impeachable offense, as a result of his past remarks to former FBI Director James Comey. Though an actual impeachment would not be easy and would undoubtedly be a long, drawn-out process if it ever came to pass, the specter of such a far-reaching scandal threatens a complete disruption of Trump's economic reform agenda. Any increased likelihood of this occurring should continue to weigh heavily on the US dollar, potentially extending its recent plunge in the short-term.

On the Canadian dollar side, Friday brings key economic data from Canada in the form of April's Consumer Price Index (CPI) and March's retail sales data. CPI, a key inflation indicator, is expected to come in at +0.5% after the previous month's lower-than-expected 0.2%. March retail sales is expected at +0.4% after February's disappointing -0.6% reading, while core retail sales (excluding automobiles) is expected at +0.2% versus the previous month's -0.1%.

Yet another factor potentially affecting the Canadian dollar will be OPEC's meeting in Vienna next week, on May 25th. It is widely expected that the meeting will result in an extension of the current OPEC-led agreement limiting crude oil production. Earlier this week, crude oil prices surged, boosting the Canadian dollar with it, after officials from Saudi Arabia and Russia agreed in principle to extend oil production cuts. Despite the ever-present threat of rising US oil production, any actual agreement to extend the OPEC-led cuts next week should result in a further short-term boost for crude oil prices, which could provide further fuel for a Canadian dollar rebound and a USD/CAD breakdown.

As Trump-driven political issues evolve, Canadian economic data is released, and OPEC's intentions come into clearer focus, USD/CAD is set for increased volatility. From a technical perspective, as mentioned, USD/CAD continues as of Thursday to fluctuate around the critical 1.3600 support/resistance level. Though the longer-term trend is bullish, the currency pair has just begun a retreat from the top of a clear parallel uptrend channel, and could have further to fall within this channel before potentially resuming the uptrend. In the event of a near-term breakdown below 1.3600, major downside targets are at the 1.3500 support level followed by the 1.3400 level, which is currently near the bottom of the noted parallel uptrend channel.

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