Home USD/CAD Forms Head and Shoulders Pattern Ahead of US CPI
USD/CAD Forms Head and Shoulders Pattern Ahead of US CPI

USD/CAD Forms Head and Shoulders Pattern Ahead of US CPI

  • Published: 8th August 2022, 15:44

The USD/CAD price retreated sharply on Monday even after the disappointing Canada jobs data and the falling oil prices. The USD to CAD exchange rate dropped to 1.2845, which was lower than last week’s high of 1.2985. The price is about 2.82% below the highest point this month.

Canada economic slowdown

The Canadian economy is going through a slowdown as evidenced by the disappointing jobs numbers published on Friday.

According to Statistics Canada, the country’s economy lost over 30k jobs in July after it lost another 43k in June. Wages and participation rate were subdued in July and the only positive data in the report was the unemployment rate, which retreated to 4.7%. 

Additional data from Canada show that the economy is still slowing down. For example, data by Ivey revealed that business activity contracted in July. Another report by S&P Global showed that the country’s manufacturing PMI dropped to 52.5 in July.

Therefore, there are concerns that the country’s economy will continue contracting in the coming months. As a result, the Bank of Canada (BoC) may have a challenge accelerating its rate hike program to fight the soaring inflation.

At the same time, the price of crude oil has declined sharply in the past few months. Brent, the international benchmark, has dropped from the year-to-date high of $135 to about $90. This is notable since Canada is one of the biggest oil producers in the world.

The USD/CAD price will next react to the upcoming US inflation data scheduled for Wednesday. Economists expect the data to show that inflation dropped slightly as gasoline prices in July. Still, the main figure will be substantially higher than the Fed’s target of 2.0%.

USD/CAD forecast

The four-hour chart shows that the USD/CAD price has been in a downward trend after it peaked at 1.3226 in July. Since then, the pair has formed a head and shoulders pattern, which is usually a bearish sign. The neckline of this pattern is at 1.2818. Therefore, the pair will likely continue falling as sellers target the next key support level at 1.2700.

Crispus Nyaga

Crispus Nyaga is a full-time financial analyst and trader with more than 7 years in the industry. He has been fortunate to work for several fintech companies, mostly from Europe, Asia, and North America. His work is published in leading platforms like Seeking Alpha, Invezz, rkdream.com InvestingCube, Capital.com, and Marketwatch. Crispus operates from a private office in Nairobi.