Matt Weller, CFA, CMT
Faraday Research
Markets are off to a bit of a groggy start to the month of February, with most global equity markets trading lower and the US dollar seeing mixed performance its major rivals. Oil, the world’s most important market (at least for the moment), is seeing a drop of its own, with WTI trading off nearly 4% on the day.
For FX traders, the drop in oil is having a predictably negative impact on the Canadian dollar. After surging to nearly 1.4700 less than two weeks ago, USD/CAD fell all the way down to close back at the psychologically-significant previous resistance level at 1.40 level last week. On a technical basis, this would be a logical level for trend-following buyers to emerge and try to take advantage of the recent pullback, especially if oil continues to roll over.
If we do see a bounce early this week, the near-term resistance levels to watch will be the Fibonacci retracements of the recent drop at 1.4230 (38.2%), 1.4400 (61.8%), and 1.4530 (78.6%). That said, the sharp drop in the MACD indicator shows that the momentum has rapidly shifted in favor of the bears, so more conservative traders may want to wait to see if USD/CAD can stabilize around these levels rather than automatically assuming the medium-term uptrend will resume. If 1.40 support is conclusively broken, USD/CAD could fall to the 50-day MA near 1.3900 or even the mid-1.30s in the coming weeks.
Beyond the intermarket correlation with oil, USD/CAD will also be buffetted by a series of top-tier economic reports, culminating in Friday’s dual jobs reports.
Key Economic Data/News that May Impact USD/CAD This Week (all times GMT):
Today: US ISM Manufacturing PMI (15:00)
Tuesday: No major economic data releases.
Wednesday: US ADP Non-Farm Employment Change (13:15), US ISM Non-Manufacturing PMI (15:00 GMT), EIA Crude Oil Inventories (15:30)
Thursday: US Initial Jobless Claims (13:30), US Factory Orders (15:00)
Friday: US Non-Farm Payrolls (13:30), Canadian Employment report (13:30), Canadian Ivey PMI (15:00)
This research is for informational purposes and should not be construed as personal advice. Trading any financial market involves risk. Trading on leverage involves risk of losses greater than deposits.
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