Canadian Dollar Recovery to Fizzle If OPEC Fails to Deliver

2016-11-28 17:56:00

David Song, Strategist

Talking Points:

- Canadian Dollar Recovery Hinges on OPEC Deal; 3Q GDP & Employment to Offer Limited Relief.

- GBP/USD Relief Rally Unravels; OECD Warns of U.K. Stagflation.

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
USD/CAD	1.3407	1.3537	1.3397	106	140

USD/CAD Daily

Chart - Created Using Trading View

USD/CAD may stage a larger pullback ahead of the Organization of Petroleum Exporting Countries (OPEC) November 30meeting as the group appears to be on course to curb supply, but an agreement to merely freeze production may spark headwinds for the loonie as the Canadian economy continues to adjust to the oil-price shock; even though the broader outlook for the dollar-loonie remains constructive as it preserves the upward trending channel, the Relative Strength Index (RSI) may also flash a bearish signal as it struggles to retain the bullish formation carried over from August.
With market focus centered around the OPEC meeting in Vienna, Canada’s 3Q Gross Domestic Product (GDP) report may spark a limited reaction even though the growth rate is expected to rebound 3.4% after contracting 1.6% during the three-months through June, and the Bank of Canada (BoC) may face increased pressure to further embark on its easing-cycle in 2017 as job growth is projected to contract 20.0K in November; note that the last three (OCT, SEP & AUG) Employment reports have beat expectations.
With the near-term advance failing to test the Fibonacci overlap around 1.3630 (38.2% retracement) to 1.3660 (78.6% expansion), with the first downside region of interest coming in around 1.3350 (78.6% retracement) followed by 1.3300 (61.8% expansion) to 1.3310 (38.2% retracement).

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
GBP/USD	1.2406	1.2532	1.2386	85	146

GBP/USD Daily

Chart - Created Using Trading View

The relief rally in GBP/USD may continue to unravel going into December following the series of failed attempts to close above 1.2490 (38.2% retracement), with the RSI at risk of highlighting a bearish trigger as the oscillator conforms to the downward trend carried over from May.
The Bank of England (BoE) may stick to the sidelines at the December 15 policy meeting as Governor Mark Carney and Co. argue ‘there are limits to the extent to which above-target inflation can be tolerated,’ but the central bank may have little choice but to further insulate the U.K. economy as the Organization for Economic Cooperation and Development (OECD) warns ‘uncertainty could hamper domestic and foreign investment more than projected and the pass-through of currency depreciation to prices could be larger, deepening the extent of stagflation.’
May see range-bound conditions going into the end of the month as near-term support for GBP/USD comes in around 1.2370 (50% expansion), with the next downside region of interest coming in around 1.2270 (23.6% retracement).