Canadian economy feels the heat

May 20, 2016

The Canadian dollar has struggled today against the major trading partners as for once it did not play of the strong correlation it has with oil markets. Instead the focus was solely on economic data and wholesale sales m/m missed the mark coming in at -1.0% (-0.5% exp). A large drop at the end of the day for wholesale sales but nothing the market is not expected for. Instead the leading cause of concern was the recent  comments from the new Canadian government led by Canadian PM Trudeau where he reiterated that the supposed hard cap of a $30 billion dollar deficit is nothing to worry about the economy, so long as the focus is solely aimed at increasing economic growth. The Canadian dollar is certainly expected to depreciate as a result in the long run if Trumps play off.

From a technical standpoint the USDCAD has hit a strong level of resistance at 1.3149 which is likely to act as a ceiling at present. Certainly oil movements in the market are likely to play a role in any bearish movements for the USDCAD as the bulls are still trying to assert dominance. For me here the key is to see if we can catch a breakout above 1.3149, which is likely to be the next leg higher to 1.3275. Above this level the previous level at 1.3149 will become support and the moving average is likely to act as dynamic support. While the technical's will certainly come into play it's also worth mentioning that Canadian CPI is due out in the next 24 hours and this will cause large swings not only in the USDCAD but also with other CAD pairs.

Silver bears have so far had all the enjoyment after the recent fall on the back of FED hawkish comments which have taken the wind out commodity speculators. Obviously the strong USD has also been helping silver bears take back control of the precious metal, and in the short term I would expect to see further pressure given the comments from the FED and the push by dollar bears to take back some control.

The technical side of silver though is what interests me as it currently faces a lot more pressure. Recently the drop down was met by the 50 day moving average, which in turn has so far acted as dynamic support. Below this level support is likely to be found as being static at 16.140. Any further push down the charts is likely to touch on 15.587, and this is unlikely to be a hard stop given the aggressive buying and selling in the silver market at present.

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