CAD has remained heavy against USD after posting a two-month low last Wednesday at 1.2544. A 8% surge in oil prices over the last week to 40-month highs has given the Canadian dollar a boost, helping offset disappointment from the news that an announcement on the NAFTA renegotiation will be delayed. The latest price action in USDCAD affirms a downside trend that’s been developing over the last three weeks, from levels above 1.3100, and we expect more downside. Initial resistance is at 1.2574-88, which is also the 61.8% Fibonacci level of uptrend seen since January 31.
Oppositely, CAD presents a stable picture against Safe haven currency such as Yen, over the last 5 days. Friday’s attempt to reach the 200-DAY EMA that coincides with the 50% Fibonacci retracement level from January’s drift lower, ended up into a negative doji candle with a long tail on the top. Meanwhile yesterday’s candle ended up into another negative small body candle as well , with a larger down wick, implying the lack of direction.
Therefore, the 4-week’s uptrend seems that has been paused for now, despite the fact that the CADJPY is moving with the upper Bollinger Bands patter above 10,20 and 50-DAY EMA. The failure of breaking above 200-DAY EMA at 86.00, along with the consolidation mode observed and the mixed signals out of momentum indicators, increase the possibility of a trend reversal. The RSI flattened at 61 level since April 10, while we need to keep an eye on MACD indicator as well, which remains positive, however the signal line is below the histogram.
However, as long as CADJPY remaining above the 38.2% Fibionacci Retracement level at 84.80 and it is supported by 50-DAY EMA at the round 84.00 level, we still remain on the scenario that sellers have not gain any control yet and is likely to see a retest of the recent swing high at 85.75-86.00 resistance area. Any rally today above the intra-day resistance at 85.30 could confirm this upswing.
Oppositely, if the market manage to push the price lower, below the 38.2% Fibonacci retracement level and the immediate support at 10-DAY EMA, at 84.54, then this suggest a possible reversal of the uptrend, with the possibility of challenging the next support area, at 83.50, which is also close to the 20-DAY MA.
Nevertheless, fundamentals remain on focus, as the BoC meets on policy tomorrow. However projection remains for no change to the 1.25% rate setting, along with a cautiously constructive growth outlook salted with trade uncertainty. An as-expected outing would maintain the base-case for further gradual rate hikes this year. The BoC will also release the Monetary Policy Report. GDP is on track to undershoot the BoC’s 2.5% estimate in Q1 (we see +1.5%), so it will be interesting to see how they view growth prospects for this year and next.
Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.