USD/CAD bulls losing grip to a 78.6% Fibo retracement as WTI corrects

USD/CAD is trading around 1.3280 having travelled between 1.3262 and 1.3303 and has been offered leading into a speech from Bank of Canada's Senior Deputy Governor Wilkins on “Central Banking in a slow-growth world”.

The speech was being watched closely due to the BoC's dovish shift in January and coronavirus concerns. Market odds of a rate cut (or more than one) this year have increased substantially which has pressured the loonie from the 1.3040s to a high of 1.3304 this year so far. In the prepared remarks of the speech, news wires privy to them reported that there were no comments in the future rate moves.

The dovish tone at the central bank coupled with the risks of a significant slowdown in global trade whereby early estimates of China’s Q1 GDP growth to fall by at least 1 percentage point is problematic for the CAD bulls considering the spillover effect due to lower commodity prices. However, the stimulus measures by Chinese authorities have lifted sentiment this week, and equity prices are in recovery of Friday's rout.  

Oil prices correcting on OPEC intervention expectations 

Looking at oil prices, for which Canada relies on its exports, WTI oil prices have fallen around $16 since the start of the year and around 17% since the coronavirus scare came into play. Correlated to the price of oil and dovish BoC, CAD net long positions moved lower last week. However, OPEC's technical committee is in its second day of talks as the cartel debates the need for an emergency ministerial meeting, which would likely result in a curtailment – a large OPEC+ emergency curtailment, combined with Libyan and Iraqi disruptions could put a floor in prices. 

Economic data events in view 

While data will take a back seat to the coronavirus headlines, we do get several key releases which include both the US and Canadian January’s employment reports.

"A more significant slowdown in hiring (which would take more than one month of jobs numbers to assess) would raise concerns that the Canadian economy’s H2/19 soft patch extended into 2020," analysts at RBC Economics argued. 

As for the US report, which usually garners more attention, it is also out but counterintuitively, today, the US dollar wasn't able to maximise on what should have been a supportive report in the ISM Non-Manufacturing data beating expectations and improving significantly on the prior reading.

The leg work had already been done on the manufacturing earlier in the week which followed December’s ISM four-year low – indeed a relief and which should stand the Nonfarm Payrolls in good stead for Friday as both industrial and services are now showing again for early 2020. 

USD/CAD levels 

USD/CAD has been capped on the 1.33 handle. Bears have made a 78.6% retracement of the rally today and pierced the 50% mean reversion mark at 1.3270 of the 2/3 Feb. spike from 1.3235.