The Dollar-Loonie pair remains within its long-term descending channel, though a rebound in the near-term may be on the horizon. As noted on Wednesday, “[T]he Dollar-Loonie pair has been mostly range bound for the better part of the past two-months, after depreciating sharply over the past ten-months...The rebound in favor of the Greenback not only comes on the heels of deteriorating global sentiment that has stirred a shift back towards safe haven…Canada, as the number one exporter of oil to the United States, sees increasing downside risks as speculators bet that falling growth rates in the United States will weigh on demand, and thus have a negative ripple effect back into the Canadian economy: the result is a markedly weaker Loonie.” With the USD/CAD pair breaking out of a channel that it has been entrenched in for the better part of the past two-months, coupled with unfavorable event risk on the data that could suggest a further slowdown in the U.S. economy, the pair could be poised to gain over the next few days.
Levels to Watch:
-Range Top: 0.9930 (Trend)
-Range Bottom: 0.9680 (Trend)
Charts created using Strategy Trader– Prepared by Christopher Vecchio
The chart below shows the Fibonacci retracement and how the USD/CAD pair trade could unfold over the coming days, off of the March 15 High at 0.9973, the May 2 Low at 0.9443 and the extension to the June 27 High at 0.9912.
Charts created using Strategy Trader– Prepared by Christopher Vecchio
Suggested Strategy
- Long: Place an entry at 0.9709 (38.2 Fibo)
- Stop: Set the stop to 0.9647 (62-pip risk, 50.0 Fibo)
- Target: The first target is 0.9758 (move up stop to 0.9739), second target is 0.9787 (23.6 Fibo), third target is 0.9815 (Thursday’s High)
- Timeframe: 2 to 3 days
Trading Tip – On Wednesday I noted, “[T]he long-term trend has held over the past few months, and the pair’s inability to break parity suggests that further weakness could be on the horizon in favor of the Loonie, especially considering the markets could shift back towards a slightly risk-seeking state once the Greek austerity measure passes on Wednesday.” Such was the case, and over the past few days, the USD/CAD pair has fallen on a strong run-up in risk-appetite. However, after such a sharp depreciation in the pair, despite daily technical indicators pointing towards further losses, a near-term correction may be due before the pair continues its depreciation. Now that the pair is out of its two-month ascending channel, a rebound above the Range Bottom could occur; as such, our entry point for a short-term long USD/CAD pair trade is set at 0.9709. The 6-hour indicators this report follows concur. The 6-hour Slow Stochastic oscillator, after reaching oversold levels, has rebounded, with the %K greater than the %D, at 5 and 4. The RSI is now oversold, at 29 (although the daily RSI is still falling, at 41). Similarly, the MACD Histogram has peaked, with the previous two periods showing a -24 differential, showing the pair may have bottomed in the near-term. Because the trend remains firmly to the downside, however, our stops are tight so as to make sure should there be a continuation in the rally in risk, heavy losses are not sustained.
Event Risk for the United States and Canada
No data is due out tomorrow for Canada, though the world’s largest economy does have a key report due ahead of what should be a quiet few days of trading in the United States, given the national holiday. As such, the data could spark some volatility for the USD/CAD pair on speculation on the near-term health of the U.S. economy.
United States – The ISM data due tomorrow is the focus of this piece, as it is the prime event risk the USD/CAD pair needs to have a small corrective wave within its long-term descending channel. As such, with manufacturing expected to decline to a pace barely above what is considered ‘expansionary’ (above 50.0 denotes expansion, below denotes contraction; expected at 51.8), an indication of slowing manufacturing in the United States would be bullish for the Dollar as it would encourage a return to risk-aversion, and thus, long USD/CAD pair.
Canada – After better-than-expected gross domestic product figures today following faster-than-expected inflationary pressures report on Wednesday, the Canadian Dollar has strong fundamental momentum in its favor. With the data due out of the U.S. tomorrow expected to be feeble, the Loonie could be affected in a negative manner in the near-term, as poor American data usually translates into investors seeking safe haven, and in this case, away from the Loonie.
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Data for June 26 to July 1 |
Data for June 26 to July 1 |
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Date |
United States Economic Data |
Date |
Canada Economic Data |
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July 1 |
U. of Michigan Confidence (JUN F) | |||
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July 1 |
ISM Manufacturing (JUN) | |||
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July 1 |
ISM Prices Paid (JUN) | |||
Written by Christopher Vecchio, Currency Analyst
To contact the author of this report or be added to his distribution list, please send inquiries to: cvecchio@dailyfx.com
Follow Christopher Vecchio on Twitter: @CVecchioFX
mailto:cvecchio@dailyfx.com
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