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USD/CAD Technical Analysis: Poloz stops the CAD from Bleeding out for Now

USD/CAD Technical Analysis: Poloz stops the CAD from Bleeding out for Now

2016-01-20 18:50:00
Tyler Yell, CMT, Currency Strategist
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Talking Points:

  • USD/CAD Technical Strategy: Bullish Uptrend with Macro Backdrop Supporting
  • 1.4375-1.4450 Zone of Support Worth Focusing on ‘Dip Buying.'
  • US Dollar Strength in Question & Worth Watching

Bank of Canada Governor Stephen Poloz noted at today’s Bank of Canada Rate Decision, where they held interest rates at 0.5% that the meeting “began with a bias toward further monetary easing”, and so did the market. Overnight, USD/CAD hit ~1.4680, which was the 78.6% of the 2002-2007 downtrend and could act as short-term resistance for now.

However, if you look to US Oil, which is down another 7% todayand is highly correlated to the Canadian Dollar, it is hard to make the case for buying CAD and selling USD with a longer-term horizon for now. Key support looks to be at 1.4375-1.4450, which mark the 50%-38.2% retracement from 1.4064-1.4686 range. On the price chart below, that also aligns with the trendline support drawn off the opening range low and the proposed wave ‘ii’ low.

USD/CAD Technical Analysis: Poloz stops the CAD from Bleeding out for Now

The Canadian Dollar remains the weakest currency in the G10, and while the impulse to sell such a strong move may be tempting, it is also an impulse worth fighting. For a significant reversal worth trading to develop, an accompanying move lower in the US Dollar would be needed.

When looking at sentiment, Crowd Sentiment Continues to Favor USD/CAD Gains as do trend following indicators like moving averages. On the sentiment chart below, you will also notice how stretched sentiment has become as traders have tried to push this pair lower unsuccessfully.

USD/CAD Speculative Sentiment Index as of 1/20/2016

USD/CAD Technical Analysis: Poloz stops the CAD from Bleeding out for Now

While the chart remains bullish above 1.4380 on a longer-term horizon, it’s also worth noting that Governor Poloz did mention that ‘fiscal stimulus’ was a key consideration and that their view of the economy was with WTI Crude Oil around $36, which is roughly 30% above current levels. In other words, there is a credible view that today’s rate hold was a simple kicking of the proverbial can down the road, which opens the door to more likely rate cuts lower and a weaker Canadian Dollar if the price of Oil remains depressed.

T.Y.

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