Bullish Rebound Signals a Bottom Bounce Rather Than an Uptrend

Central Bank

Forex

Summary:

After a decline in Canadian retail sales in June, a rebound is expected in July. However, this growth is unlikely to erase the poor performance of the first half of the year, which supports the case for the Bank of Canada to continue cutting interest rates.

SELL USDCAD

Close Time

CLOSED

1.34822

Entry Price

1.32210

1.36410

1.36959 -0.00140 -0.10%

126.2

Pips

Loss

1.32210

1.36084

Exit Price

1.34822

Entry Price

1.36410

Fundamentals

According to preliminary data released last Friday by Statistics Canada, Canadian retail sales decreased by 0.3% month-on-month in June to CAD 65.7 billion, in line with expectations. Sales declined in four out of nine sub-sectors, with the largest drop observed in motor vehicle and parts dealers. In terms of volume, retail sales increased by 0.1% month-on-month.

Excluding gasoline stations, fuel suppliers, and motor vehicle and parts dealers, retail sales rose by 0.4% month-on-month.

Retail sales fell by 0.5% in Q2, with a 0.3% decline in sales volume.

Preliminary estimates indicate that retail sales increased by 0.6% month-on-month in July.

Overall, given the weakness in the Canadian economy, this should reinforce the Bank of Canada's view that the economy has softened sufficiently to keep inflation on a downward trajectory. We still expect the Bank of Canada to cut the overnight rate by another 25 basis points in September.

Bullish Rebound Signals a Bottom Bounce Rather Than an Uptrend_1

Technical Analysis

After breaking below the 1.3600 level and the 200-day SMA last week, USDCAD has paved the way for a medium-term downtrend.

Currently, the intraday bias remains on the downside. A deeper decline could push the bears toward the 1.3478 support level, followed by 1.3450 and 1.3420.

On the upside, breaking above the 1.3617 resistance level would first make the price trend neutral and potentially boost trader sentiment, encouraging a shift to a neutral to bullish stance. Bulls breaking above the 50-day and 20-day SMAs would further target the 1.3790 resistance level.

In the bigger picture, we believe the reversal conditions are not yet in place. Current developments suggest that the corrective pattern that began from the 2022 high of 1.3976 is extending with another falling leg. Although a deeper drop is possible, strong support should hold above the 1.2947 resistance-turned-support level to bring a rebound. The uptrend that began from the 2021 low of 1.2005 still favors a recovery at a later stage.

Overall, the trading direction seems clear for USDCAD after breaking below the critical 200-day SMA, with selling at highs being the preferred strategy.

Trading Recommendations

Trading Direction: Sell

Entry Price: 1.3500

Target Price: 1.3221

Stop Loss: 1.3641

Valid Until: 2024-09 - 10 23:55:00

Support: 1.3477, 1.3419, 1.3339

Resistance: 1.3549, 1.3571, 1.3620

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