USD/CAD: Crunch time for this pair at a critical technical and fundamental juncture
|- USD/CAD is moving towards an interesting area of resistance where above 1.3100, the descending channel's resistance line would be breached for the first time that it was established since the double tops of June's business earlier this year.
- The BoC will deliver a hike at tomorrow's meeting and while this expectation is almost fully-priced by the market, the recent renegotiations of NAFTA may see a slightly more positive tone struck and thus propel the Loonie through key technical levels and maintain the broader bear trend intact.
- USD/CAD is currently trading at 1.3087 having made a high of 1.3222 and a low of 1.3082.
USD/CAD has been rising in a progressive bid from 1.2782 Sep 31st low and made a recent high of 1.3132 on broad-based US dollar strength. At this juncture, the pair finds its self at a crossroads for it the daily channel's resistance line where there is likely to be a number of stale shorts with their buy stops lurking around the corner. We are also running into some critical events this week, with the BoC on Wednesday and key US data in real GDP on Friday.
Elsewhere, on a fundamental basis, at first thought, there would seem to be a bizarre decorrelation whereby the pair cannot rally significantly, (just 35 pips), on benchmark oil prices falling to their lowest levels since mid-August - WTI's low today is down at $65.75bbls, currently down 4.38% on the day, but we were at $76.82 at the start of this month when USD/CAD was it the lows. One might expect for this correlation to kick in again once the BoC is out of the way and we know where we stand with respect to the US GDP on Friday - However on second thoughts, it is worth noting that the price of West Canada Select (WCS) Crude has been falling even with that run in WTI from $64 bbls to Oct highs, so the fact that WTI was overpriced is not enough of a catalyst to short the CAD at this juncture.
Analysts at Nomura explained that headwinds remain for CAD: BoC to hike, but CAD’s headwinds remain - Nomura
- First, cracks continue to emerge beneath the headline data.
- Second, they remain cautious about how much tightening the market has already priced in for the BoC – particularly relative to the Fed.
- Third, while oil prices globally have risen, the benefits thus far to the Canadian economy are likely to be more limited.
USD/CAD levels
From a technical perspective, as mentioned, the pair is at a crossroads. We have the sustained bull trend intact that has been in place since the lows of Sep 2017 that reached a high in the 1.3380s and we are currently in the sixth wave of this sustainable 45 degree bullish channel. The current wave is merely a daily corrective wave and bulls are looking to reassert themselves which will either happen from here on a break of the 1.31 handle, or we could be looking at a run back to below 1.30 from where a fresh round of buying would be expected to establish the seventh bull wave within the long-term bullish channel. On the other hand, a break of the ascending trend support in this current bearish wave at 1.2890 could exert further supply and break the bullish trend with closes below the late Sep lows. Targets would be then set to the 1.27's, 1.25's and 1.22's.
Analysts at Scotiabank explained that their outlook for USD/CAD in the short-term is neutral/bullish with momentum indicators that are bullish and the DMI’s that are confirming their view:
"USD/CAD tested the multi-month descending channel ceiling on both Friday and Monday. The ceiling is currently just above 1.3120 and a break would open up the risk of a medium-term bull flag and push toward 1.35/1.36. Recent support has been observed around 1.3080."
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