Canadian Dollar Pares Decline on Higher Oil Prices, Japanese Yen Underperforms

The Canadian dollar held a narrow range on Tuesday following the rise in crude oil prices and is best performing currency against the greenback after retracing the overnight decline, and the loonie may continue to trend sideways ahead of the Asian session as investors wait for the American Petroleum Institute’s energy inventory update at 21:30 GMT. Nevertheless, the USD/CAD remains slightly higher from the open after failing to break above the 100-Day SMA (1.0691) for the second day, and has moved 73% of its ATR as the greenback regained its footing following the rise in risk aversion. However, as the 30-minute RSI falls back from overbought territory, we may see the dollar-loonie continue to push lower throughout the U.S. session, and trade along 100 (1.0603) and 240 (1.0577) moving averages as the economic docket reinforces an improved outlook for the world’s eighth largest economy.

The Japanese Yen tumbled lower against the greenback, with the exchange rate surging to a high of 89.69 on the back of U.S. dollar strength however, the overnight rally looks to be losing steam as the pair remains overbought. The dollar-yen has moved nearly 89% of its average true range, with the 30-minutes relative strength index jumping above 80 during the overnight trade, and the pair may fill-in the gap from the 100-SMA at 88.89 as the RSI pulls back from the high. Nevertheless, as price action holds above the 50-Day SMA at 89.50, a close above this level may lead the dollar-yen to retrace the decline from the previous week as the 10-Day (88.76) looks poised to cross above the 50-Day, and  we may see pair hold a broad range going into the following year as investors weigh the outlook for future policy.

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To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com