On Wednesday’s video, we opined that USDCAD would drop to 1.312 – 1.3160 range where buying would be likely to begin again. It turned at that our prediction worked both ways. The pair had broken out of a bear channel and hit resistance so our expectation was to that there would be a return move before buying can start again. In yesterday’s trading buyers stepped in and bid USDCAD to 1.3202 before the market corrected slightly. By reading further you agree with our disclaimer at the bottom of this page and acknowledge that we do not provide investment advice.

Have you noticed how easy it is to explain market moves afterwards? According to financial news sources, the combination of dropping oil prices and comments from BOC Governor Tiff Macklem turned CAD lower against the dollar. He said the bank would take the recent strengthening into consideration when deciding on (the monetary) policy. As the readers can see, the financial press always finds an explanation for price moves – after the fact. However, we told about these USDCAD moves (first down and then up) before they happened. This is much more valuable. I was able to see this as I have over two decades of experience in price action analysis. By reading my analysis and following my Daily Market Commentary videos you will also learn and will understand more about this fascinating world of global financial markets and their interplay.

Now that USDCAD has bounced higher from this support the probability of the market moving to Wednesday’s highs has increased significantly. Therefore we will monitor the price action and see if there will be follow-through buying that will take the price to this near-term target (1.3240).

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We said yesterday that the $38.50 resistance is still a key level that needs to be conquered. The fundamental backdrop of low demand is still there and crude oil is currently stored in tankers as supply is exceeding demand. We also told to look for volatility in oil if the change US Crude Oil Inventories deviate strongly from analyst expectations of -3.1M barrels. The actual number was confirmed to +2 million barrels which caused the traders to sell oil in yesterday’s trading. Our key resistance of $38.50 held and now it seems that we have a flag formation developing. It is a continuation formation that indicates the price is likely to continue moving in the direction of the prevailing trend. If the price breaks out from the formation today the projection points to about $33. Now that technical picture and fundamental backdrop both favour  the downside, our T1 (target 1) is at $33.10 and T2 (target 2) at $32.10. As usual, there is no guarantee of price moving to these targets. All we can do is to focus on probabilities and price action. The risk factors include a strong decrease in risk aversion (increase in risk-on sentiment) that could be caused by new QE announcements and news about decreasing oil supply / increasing demand. As every analysis has its risk factors we need to keep the positions manageable (small enough) and thus risk under control.  Next support level can be found at $34.38 but in downtrends, supports tend to get violated. Let’s keep on, however, the attitude that we need to trade what we see and never trust our ideas or preconceptions blindly. For more analysis follow our Daily Market Commentary videos here.

VIX moved higher yesterday and stocks sold off again. Rally in VIX was stopped at $30.70 while the S&P 500 e-mini futures sell-off was halted above the previous reactionary low. Futures have since recovered a bit in the Globex session.

ES remains in a bear channel in the 4h timeframe but there is an attempt to create a higher low. The area above from 3383 (10-period SMA) 3424 (yesterdays highs) is likely to be a test for the commitment of the bulls. 

Recent macroeconomic data releases

BOC Overnight Rate, 0.25% (0.25% expected)
ECB Main Refinancing Rate, 0.00% (0.00% expected)
US Core PPI, 0.4% (0.2% expected)
US PPI, 0.3% (0.2% expected)
US Unemployment Claims, 884K (838K expected)
US Crude Oil Inventories, 2.0M (-3.1 expected)

Macroeconomic data releases today 

Eurogroup Meetings
US CPI, 0.3%
US Core CPI, 0.2%

You may access the times and dates in the economic calendar here.

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Janne Muta
Chief Market Analyst

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Janne Muta

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