Friday, June 10 2022

Canadian Dollar Talking Points

USD/CAD fails to extend series of lower highs and lower lows from earlier this week as it retraces the decline after the Federal Reserve Interest Rate Decisionbut the May opening range warns of a deeper pullback in the exchange rate amid the failed attempt to test the 2021 high (1.2964).

USD/CAD rate outlook mired by failed test of 2021 high

USD/CAD is rebounding from a new weekly low (1.2714) on the strength of the US Dollar, and it looks like the recent change in investor sentiment is benefiting the greenback as the American stock market comes under pressure.

It remains to be seen if the updated US Non-Farm Payrolls (NFP) report will influence USD/CAD as the Federal Open Market Committee (FOMC) insists that “further increases of 50 basis points should be on the table for the next two months”. meetings,” and an increase of 391,000 jobs could keep the central bank on track to normalize monetary policy at a faster pace as “the labor market is extremely tight.”

Image of the DailyFX Economic Calendar for Canada

Meanwhile, Canada’s jobs report may encourage the Bank of Canada (BoC) to follow a similar approach, as the economy is expected to add 55,000 jobs in April, and the central bank may offer another hike in rate of 50 basis points at its next meeting in June. 1 as “growth appears to have been stronger in the first quarter than expected in January and should pick up in the second quarter.”

As a result, developments may lead to a USD/CAD knee-jerk reaction as the numbers are likely to have limited impact on the monetary policy outlook, and another cash investor confidence could keep the exchange rate afloat, with the greenback benefiting from deteriorating risk appetite.

In turn, USD/CAD could appreciate over the next few days as it breaks the series of lower highs and lower lows from earlier this week, and a new advance in the exchange rate could fuel the recent turnaround in retailer sentiment, similar to the behavior seen in the previous year.

Image of IG client sentiment for USD/CAD rate

the IG Customer Opinion Report shows 49.86% of traders are currently long fillet USD/CAD, with the ratio of short to long traders standing at 1.01 to 1.

The number of net long traders is 6.70% lower than yesterday and 2.84% higher than last week, while the number of net short traders is 24.01% lower than yesterday. yesterday and 10.78% lower than last week. The rise in the net long position comes as USD/CAD retraces the drop following the Fed’s rate decision, while the drop in net short interest dampened the recent reversal in retail sentiment, 49.03 % of traders being net long on the pair earlier this week.

That said, swings in investor confidence could sway USD/CAD over the next few days as the US and Canadian jobs report may do little to sway the FOMC and GDP. BoC, and recent price action raises the possibility of a larger advance in the exchange rate as it breaks the series of lower highs and lower lows from earlier this week.

USD/CAD daily rate chart

Image of daily USD/CAD rate chart

Source: Commercial view

  • Keep in mind, USD/CAD reversed ahead of the April low (1.2403) as it failed to break below the Fibonacci crossover around 1.2410 (23.6% expansion) to 1.2440 (23.6% expansion ), the exchange rate surpassing the March high (1.2901) at the beginning of the month how he tradesD to a new yearly high (1.2914).
  • However, the lack of momentum to test the 2021 high (1.2964) could lead to a larger pullback in USD/CAD as the recent rally in the exchange rate fails to push the Relative Strength Index (RSI) in overbought territory, with the May opening range at the center of the week ahead as price struggles to hold above the Fibonacci overlap around 1.2830 (38.2% retracement) to 1.2880 (61.8% expansion).
  • Don’t stand above the 1.2770 (38.2% extension) region could lead USD/CAD to threaten May opening rangewith a move below the monthly low (1.2714) increasing the possibility of a run down 1.2620 (50% retracement) to 1.2650 (78.6% expansion) region.
  • Need a fence over the overlap around 1.2830 (38.2% retracement) to 1.2880 (61.8% expansion) to bring the 2021 high (1.2964) back on the radar, with a Region of 1.2980 (61.8% retracement) opening the area from 1.3030 (50% expansion) to 1.3040 (50% expansion).

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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