USD/CAD's drop stalls at trendline support in 1.3150

• USD/CAD is finding support at an hourly trendline while the daily structure also holds up the bears.
• The US election, BoC, COVID and the commodities markets are all factors to consider.

USD/CAD is currently trading at 1.3146, down 0.49% as it tests trend-line support with risk appetite returning.

On Monday, the currency touched its weakest intraday level since Oct. 16 at 1.3225.

However, on Tuesday, the Canadian dollar has been travelling north between a low of 1.3145 USD/CAD from a high of 1.3212. 

The commodities complex has bounced back to life as stocks and the oil prices rose. Canada runs a current account deficit and is a major producer of commodities, including oil, so the loonie tends to be sensitive to investor risk appetite.

The CRB index is trading over 1% higher and WTI is strongly up by over 2% owing to the fact that companies have shut down some US Gulf of Mexico oil output due to a hurricane and despite the rising Libyan supply.

Dr copper is lagging, however, with CFD's on the industrial metal barely off the lows from the start of the week. 

Nonetheless, there is an improvement in risk appetite as the second wave COVID-19 news sinks in and is brushed off on Wall Street, at least. 

Markets are becoming more convinced a blue wave is happening, which is supportive for stocks and for the fight against COVID.

US elections are the main focus

In the FX space, investors may be reluctant to build positions before the US presidential election on Nov. 3rd.

Moreover, for CAD, we have the Bank of Canada which is due to make an interest rate decision and update its economic outlook on Wednesday.

Markets are expecting that the central bank will leave rates at a record low of 0.25% until its 2% inflation target is achieved sustainably.

The BoC has already been vocal and said that it does not expect the target to be met for at least two years.

The projections in the Monetary Policy Report will likely drive most of the market reaction. However, the probabilities of further stimulus by the BoC being rather low, so CAD volatility is unlikely. 

Canada’s August Gross Domestic Product numbers will also be out this week, on Friday.

''We look for GDP growth to slow to 0.8% MoM as the economic recovery stagnates in some sectors, leaving output 5% below pre-COVID levels,'' analysts at TD Securities explained. 

''Monthly activity data has shown further deceleration in August but construction/real estate will provide a key source of strength.

<1% growth will still leave Q3 GDP tracking near 45% but the pace of recovery will slow sharply in Q4,'' the analysts at TD Securities said. 

USD/CAD levels

We may continue to see a range-bound situation between 1.31/1.32 level in the pair in the run-up to the US elections.

The daily chart above shows that there is strong weekly monthly support below the correct range.

On the upside, there are prospects of a break higher if the current resistance area is broken.