Almost to the pip. Our USDCAD analysis has been highly accurate lately. First, on April 21st (here) we pointed to the downside potential related to the BOC cutting its bond-buying by 25% and the pair plummeted over 450 pips (>3.60%) since the BOC tapering move. On Monday we said (here) that the move to the downside in USDCAD is getting quite extended and could therefore attract short-covering this week. The down move was reversed only 0.47% below Monday’s close while the lowest close since our report was only 2 pips(!) below Monday’s close. Now USDCAD has created a bullish reversal candle suggesting the traders are looking to push the price higher for change. This has helped TIOmarkets traders to get their positioning right. Join us now by clicking the banner below and trade the markets with our superb analysis and razor-thin spreads. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.

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Bullish view: The downside move has been too extended and the market is showing signs of turning higher. This is evidenced by the candle with a long wick and a close higher than the day before. This indicates that we could see a move to the next confluence zone at 1.2260 – 1.2318 (the 23.6% Fibonacci retracement level and the 20-day SMA). The zone after this one can be found at 1.2363 – 1.2422 (a historical resistance, the 38.2% Fibonacci retracement level and the bear channel high). This view is supported by strength in the USD Index and the rising yields. If price action stays bullish for the USD in general and the price of oil doesn’t rally substantially over the next few trading days the rebound in USDCAD is likely to continue.

Bearish view: A decisive break below yesterday’s low would negate the bullish signs. However, as the IEA sees oil demand growing the rally indicated by the price action this week might not last long. If the price of oil finds sustained footing and starts to rally we expect to see weakness in the USDCAD pair.

Macro drivers: Inflation fears in the US have driven the US Treasury yields higher over the last few days. This was intensified as based on the last 6 months the US inflation is running at 5% while the early rate is at 4.2%. Rising yields support the USD. It is remarkable that the price of oil couldn’t rally and turned lower even if the US inventories disappointed and decreased less than the analyst consensus had expected (-0.4M vs. -2.1M expected). This should be bullish for oil but failed to move prices higher.

The lack of buyers is reportedly related to US crude exports decreasing substantially. This supports the USD against the Canadian dollar that is sensitive to the price of oil. Another factor dampening the oil bulls’ enthusiasm is the rising coronavirus cases in India, the world’s third-biggest importer of crude oil. However, at the same time, Reuters reports that according to the International Energy Agency (IEA) oil demand is already outstripping supply and the shortfall is expected to grow further even if Iran boosts exports.

The Next Main Risk Events

  • USD – Unemployment Claims
  • CAD – BOC Gov Macklem Speaks
  • GBP – BOE Gov Bailey Speaks
  • USD – 30-y Bond Auction
  • USD – Core Retail Sales m/m
  • USD – Retail Sales m/m
  • USD – Industrial Production m/m
  • USD – Prelim UoM Consumer Sentiment

For more information and details see the TIOmarkets economic calendar here.

Trade Safe!

Janne Muta
Chief Market Analyst

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Janne Muta

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