Upside Channel All Open, Path Of Least Risk May Be Continuous Upside

Summary:

Canadian retail sales rose 1.1% to $63.1 billion in June, the sixth consecutive monthly increase. Sales rose in 8 out of the 11 industry segments, accounting for 76.8% of retail sales. Sales at gas stations and auto and parts dealers led the growth.

BUY USDCAD

Close Time

CLOSED

1.29933

Entry Price

1.31300

1.29300

1.37380 +0.00139 +0.10%

44.4

Pips

Profit

1.29300

1.30377

Exit Price

1.29933

Entry Price

1.31300

Fundamentals

Canadian retail sales rose 1.1% in June from a month earlier, well above Statistics Canada's preliminary estimate of 0.3% growth. However, inflation-adjusted growth slowed markedly, with monthly sales increasing only 0.2%. Separately, Statistics Canada's preliminary estimate of retail sales for July showed a 2.0% decline.

Canadian retail sales in June were boosted by higher sales at gas stations and auto and parts dealers. Revenues at gasoline stations rose 3.9% month-on-month as gasoline prices rose again. Adjusted for price effects, gasoline sales actually fell 1.3%, the second consecutive monthly decline.

Sales at automotive and parts dealers increased 1.8% month-on-month. Core sales, excluding automotive and gasoline, increased only slightly by 0.2%, the smallest increase since the beginning of the year. Inflation-adjusted core sales were flat.

Let's turn to the market observation. Canada's overall retail sales growth in June was surprising, but in terms of the breakdown, much of the increase was due to higher prices. Adjusted for inflation, total sales rose just 0.2% for the month, while core sales were flat. With inflation at multi-decade highs, higher prices have been boosting nominal retail sales figures, but inflation-adjusted figures are a different story, as exemplified by sales at gas stations. While gasoline sales rose in both June and July in USD terms, they fell in both months in volume terms as Canadians drove less to mitigate the impact of high gasoline prices.

As we note in today's report, consumer spending on goods and services appears to have slowed in July after posting strong growth in the initial months of the reopening. While some slowdown is expected after strong growth in the initial months of the reopening, higher prices are also putting pressure on consumer purchasing power.

Fortunately, gasoline prices have eased in July, which should provide some relief to consumer confidence. They will need to save more given that prices of many other key commodities, such as food, continue to accelerate. With no relief from inflationary woes, the Bank of Canada is expected to raise interest rates again in less than three weeks.

USDCAD: Upside Channel All Open, Path Of Least Risk May Be Continuous Upside_1

Technical Analysis

So far this year, the CAD remains the best-performing G7 currency outside of the USD. Even though the CADUSD exchange rate has struggled to reflect these factors, a resilient economy and hawkish central bank coupled with firm commodity prices have created positive supportive conditions for the CAD, which constitutes strong support.

In addition, the CAD remains strong against other major currencies. With domestic yields moving higher, the CAD appears to be expected to remain firm. We expect Canadian domestic growth and interest rates to outpace those of the U.S. this year and next, which will limit the ability of the USDCAD to move beyond the recent range highs.

We believe that the CAD will continue to move modestly higher through the end of the year, especially if the broader risk backdrop improves, which will allow the CAD to more fully reflect its positive fundamentals.

From a technical perspective, the USDCAD broke above the 1.3000 round figure mark in the New York session, coinciding with the 50% Fibonacci retracement level of the July-August decline, adding to the positive bullish outlook. In addition, the oscillators in the daily chart have entered the bullish territory, suggesting that the path of least resistance for USDCAD is to the upside. It is recommended to buy the dips.

Trading Recommendations

Trading Direction: Long

Entry Price: 1.2999

Target Price: 1.3130

Stop Loss: 1.2930

Valid Until: 2022-09-02 20:00:00

Support: 1.2947, 1.2970

Resistance: 1.3024, 1.3039

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