Talking Points:
- USD/CAD Technical Strategy: Upside Remains Favored On Hold of 1.3264
- Crude Oil Price Forecast: 16-Month Highs In Oil Negates Double-Top
- Bank of Canada Rate Announcement May Respond To Weak Export Growth
Quick Fundamental Take:
The Canadian Dollar was able to salvage November on the back of the OPEC accord that saw the first coordinated production cut out of OPEC in eight years. However, the resolute Canadian Dollar may cause a more vocal Bank of Canada on Wednesday when they meet to discuss the economic progress and are expected to hold rates.
While the CAD has traded well against weaker currencies like the JPY in early December, there is still a lot of headwinds facing the loonie. On Tuesday, the Canadian economy recognized a worse than expected export volume in the trade balance that recovered from November’s anomaly.
Having a Hard Time Trading USD/CAD? This May Be Why
Much of the USD/CAD downside has been a combination of the Canadian Dollar benefiting from the DXY pause while participating in the Oil Rally to 16-month highs as a commodity currency. The upside for the Canadian Dollar will likely face many tests hard to pass with the positive US Data like Monday’s Non-Manufacturing ISM and next week’s Federal Reserve Rate announcement that could result in a reshaping of market expectations of the projection of future rate policy.
Any signs that the Bank of Canada will battle the weak export growth with accommodative policy alongside a more hawkish Fed could resume the sluggish trend higher in USD/CAD that has been in place for H2 2016. However, the strong jobs number that Canada showed last Friday could help encourage CAD bulls against weaker currencies if the Bank of Canada remains on hold for now.
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Technical Focus:
D1 USD/USD: Consolidation Above LT Support (100-DMA, Ichimoku Cloud, RSI(14) 40 Line
Chart Created by Tyler Yell, CMT
The Canadian Dollar has strengthened by ~3% over the last month at touching the 50% retracement of the 2016 range. For the time being, the burden of proof is on USD/CAD Bulls as the price sits below Shorter-term resistance like the 50-DMA and H4 Ichimoku Cloud.
However, we’re also sitting above longer-term resistance like the 100-EMA (1.3190), Daily Ichimoku Cloud (1.3230), and Momentum Support of RSI(14) sitting at the 40-level.
The current consolidation has shown little signs of reversing, and we will favor further short-term CAD strength against the USD and other weaker currencies as USD/CAD remains below weekly opening range high of 1.3357 and November 22 low of 1.3378. The longer-term chart shows a polarity zone in effect near 1.3264, which has been pierced but not severely broken. A stronger break of 1.3264 would open up the argument for a move down to 1.3190, which is where we currently find the 100-DMA.
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A breakout above 1.3357/78 would open up Bullish targets of 1.3537 followed by the November 14 high near the 50% retracement of the January-May range at 1.3589. If 1.3589 breaks, we’ll be on the watch of the 61.8% retracement of the same range at 1.3838.
Key Short-Term Levels as of Tuesday, December 5, 2016
T.Y.
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