Today's data is expected to show Canada's trade deficit at CAD 3.4 billion, while in the US it is to be USD 49 billion. In addition, the Ivey PMI for Canada will be published at 04:00 pm GMT. A slight decrease of this index is expected below 70 points after a good print of 71.4 last month. The Building Permits data are expected to decrease -1.0% this month after 3.1% increase in April.
Moreover, this weekend, the G7 meeting will take place, during which issues related to customs tariffs and negotiations in relation to the NAFTA agreement will be discussed. Canada refused to switch to negotiating a bilateral agreement with the US yesterday. Trump's chief economic advisor, Larry Kudlow, admitted yesterday that the White House chief is increasingly willing to talk 1 to 1 with Canada on the subject of the NAFTA contract, rather than in the formula three (plus Mexico). In addition, Mnuchin asked Trump to cancel tariffs on aluminium and steel in relation to Canada.
Trump guesses that there is no chance of accepting a new NAFTA treaty this year. The negotiations with Mexico are difficult, and at the beginning of July there are key elections to the parliament and the presidential election, which makes time for ratification of this the agreement very short, so he begins to put in bilateral agreements. In the context of the November partial elections to US Congress, the White House and Republicans are hungry for some successes, because the risk of losing the majority of votes is high.
In conclusion, this could be an element of NAFTA negotiations, but it is also a might signal that the issue of possible exemptions from customs duties for other countries begins to return. In that case, the USD might get weaken across the boards and the CAD might likely to move up, especially of the move will be supported by solid macroeconomic data.
Let's now take a look at the USD/CAD technical picture at the H4 time frame before the scheduled data are released. The market had made a fake breakout above the technical resistnace at the level of 1.3045 and since then the price is dropping. Currently, the USD/CAD is testing the local support at the level of 1.2905 and if the data will be solid, then the break out lower is imminent. In that case the target is seen at the level of 1.2834 - 1.2819 zone. The weak momentum indicator pointing to the downside supports the bearish outlook.
