USD/CAD bulls start to push back, What now?

Gianluca Privitera, CIM Independent Analyst

The great Canadian bull run has been quite impressive to start the year. The Loonie is one of the top performers in G10 for 2019 after being decimated in December. The main drivers of this run include:

The rebound in global oil prices: Yes, even Canadian oil…
A weaker US Dollar - Mr. Powell fought the market, and the market won (for now)
Improvement in global risk appetite - US & China are playing nice, but mood can change in an instant

We have seen all three of the above reverse a bit since Thursday, which has resulted in bulls jumping back in on USD/CAD. As seen in the daily chart below, buyers stepped in right around the 100 DMA (1.3180). Is this a temporary pause amidst a bigger reversal in the pair? Or will global sentiment crack and send USD/CAD roaring back in to the mid-high 1.30s? We should have some answers over the next week or so.

Figure 1 - USD/CAD Daily (NetDania)

A break of the 100DMA would be significant, and even more so if it blows through the 200 DMA (1.3086) as well. Global market risks have been muted but are still prevalent. Since USD/CAD can only go as far as market sentiment will allow for, you may not want to jump into a short position at this point unless we see confirmation of a trend continuation.

This week we have the Brexit vote, which is almost certain to be rejected by UK parliament. We have also yet to hear any concrete next steps from US-China negotiations, and the gap appears to be as wide as ever. Oh, and the US government shutdown is fast approaching the 1-month ever.

If we get positive developments on these fronts, then risk assets (such as the Loonie) stand to continue their strong January. But don’t hold your breath…The more likely scenario is that nerves slowly begin to return, and we could see USD/CAD bounce and continue its uptrend seen on the weekly chart below. In the short-term, I have yet to be convinced that either direction is more likely than the other, which is why I would suggest patience and caution before adding or entering new USD/CAD positions. If anything, pulling risk of the table is probably the best play until the trend becomes clearer. In terms of the long-term outlook, all significant risk factors are still very much alive. Plan accordingly.

Figure 2 - USD/CAD Weekly (NetDania)

Author

Gianluca Privitera, CIM

Independent Analyst

As an FX & derivatives strategist, commercial and institutional clients rely on Gianluca to manage their global market risks and maximize their profitability.

EUR/USD trims gains, hovers around 1.1900 post-US data

EUR/USD trades slightly on the back foot around the 1.1900 region in a context dominated by the resurgence of some buying interest around the US Dollar on turnaround Tuesday. Looking at the US docket, Retail Sales disappointed expectations in December, while the ADP 4-Week Average came in at 6.5K.

GBP/USD comes under pressure near 1.3680

The better tone in the Greenback hurts the risk-linked complex on Tuesday, prompting GBP/USD to set aside two consecutive days of gains and trade slightly on the defensive below the 1.3700 mark. Investors, in the meantime, keep their attention on key UK data due later in the week.

Gold loses some traction, still above $5,000

Gold faces some selling pressure on Tuesday, surrendering part of its recent two-day advance although managing to keep the trade above the $5,000 mark per troy ounce. The daily pullback in the precious metal comes in response to the modest rebound in the US Dollar, while declining US Treasury yields across the curve seem to limit the downside.

XRP holds $1.40 amid ETF inflows and stable derivatives market

Ripple trades under pressure, with immediate support at $1.40 holding at the time of writing on Tuesday. A recovery attempt from last week’s sell-off to $1.12 stalled at $1.54 on Friday, leading to limited price action between the current support and the resistance.

Dollar drops and stocks rally: The week of reckoning for US economic data

Following a sizeable move lower in US technology Stocks last week, we have witnessed a meaningful recovery unfold. The USD Index is in a concerning position; the monthly price continues to hold the south channel support.