USD/CAD sees sharp reversal back towards 1.3100 with Canadian PM pessimistic on Covid outbreak

USD/CAD has seen a sharp reversal from lows close to 1.3040 in recent trade, with the pair now trading in the 1.3080s with gains of nearly 20 pips or just over 0.1% on the day. USD/CAD was close to making fresh lows on the week (set on Wednesday just below 1.3040), but the pair has now reversed to trade back to levels it has spent most of the week trading within (between roughly 1.3060-1.3120).

CAD hurt as PM Trudeau hints at tighter virus control measures

Whilst Covid-19 concerns have been on the agenda of CAD traders for some time (USD/CAD, much like other USD majors has been buffeted this week by vaccine optimism and lockdown pessimism), the focus has until now been on the situation abroad rather than the Covid-19 situation closer to home.

However, virus numbers North of the border have been creeping up as of late. Canadian health officials today warned that daily Covid-19 infections could reach 60K per by the end of December from their current levels of 4.8K if people continue to increase their number of daily contacts. These warnings were followed by comments from Canadian PM Justin Trudeau, who said that Canada is seeing a “massive spike” in cases and there is a risk that hospitals could get overwhelmed. Canadians would have to do more to contain the virus that they did a few weeks ago, which he said was frustrating.

Whilst official measures to curb the virus spread weren’t announced on Friday, markets are now upping their expectations for some form of economic restrictions to be enforced in the coming days.

As a recap, there was also some important Canadian data today in the form of retail sales numbers for September, as well as New House Price Index data for October. Retail sales came in much stronger than expected at +1.1% MoM (expected was 0.2%), while Core sales rose a similarly strong 1.0% (expected was also 0.2%). CAD, however, was largely unfazed and more focused on global themes.

USD/CAD off lows but bearish bias still intact

USD/CAD might be sharply off lows, and might have been unable to set fresh weekly lows earlier on this Friday, but the pair continues to trade within the bounds of a bearish trend channel, which implies that, most likely, the grind back towards 1.3000 will continue.

The trend channel links the lows of the 16 and 18 November (at roughly 1.3065 and 1.3035 respectively) and the highs of the 13 and 19 November (at roughly 1.3170 and 1.3125 respectively). To the downside, the next key area will of course be Friday’s lows at 1.3040, as well as the weekly lows just below that, both of which will need to be broken at some point if the cross is to continue to the south. To the upside, the downwards trend channel top will likely come into play around the psychological 1.3100 mark. Above that, there is key resistance in the form of the 16 and 19 November highs at 1.3125. Then there is the 21DMA at 1.3140.

USD/CAD hourly chart