USD/CAD bulls still in control, notwithstanding last week’s violent drop
Matt Weller, CFA, CMT January 25, 2016 1:25 PM
<p>All good things eventually must come to an end, and after last week’s price action, USD/CAD bulls are wondering whether the seemingly never-ending gravy train of higher rates is finally done. The currency pair had surged a staggering 1500 pips in less than three months to hit a high above 1.4600 before rolling over in the second half of last week. </p>
All good things eventually must come to an end, and after last week’s price action, USD/CAD bulls are wondering whether the seemingly never-ending gravy train of higher rates is finally done. The currency pair had surged a staggering 1500 pips in less than three months to hit a high above 1.4600 before rolling over in the second half of last week.
As with just about every major market nowadays, USD/CAD’s most important driver is oil. Oil prices did manage to stage an oversold bounce late last week (coinciding with the bearish reversal in USD/CAD), but as my colleague Fawad Razaqzada noted on Friday, talk of a bottom in crude may be premature at this stage. While there’s nothing in the way of traditional market-moving economic data scheduled for today, there is a report on the wires that Qatar has requested an emergency OPEC meeting; depending on whether the request is approved, it could serve as a near-term catalyst for oil and by extension, USD/CAD.
Technical View: USD/CAD
Turning our focus to the USD/CAD chart, we’re still inclined to give the established uptrend the benefit of the doubt. Despite the precipitous 3-day, nearly 600-pip peak-to-trough drop late last week, the unit is still holding above the last notable previous resistance level at 1.40, and that level may provide support if we see any more downside this week. Meanwhile, both the 20- and 50-day moving averages are still trending sharply higher, indicating that the short- and medium-term trends are still in favor of the bulls.
The secondary indicators are presenting a slightly more nuanced picture, with the MACD rolling over back below its signal line (but still well in positive territory) and the RSI indicator dropping from overbought territory back toward the 50 level. At this point, neither indicator has seen any structural damage that would suggest the recent uptrend is coming to an end.
Predicting the near-term movement of a given currency pair or market is fraught with difficulty, especially when there are external geopolitical bodies in play (OPEC), but much like with oil, it seems likely that last week’s reversal was merely a brief counter-trend move, and we would expect the medium-term uptrend in USD/CAD to resume this week. As long as support at the 1.40 level holds, bulls could look at last week’s pullback as an opportunity to join the established uptrend at a more favorable price.
* We have been nominated in the "Best Analysis" category in the FXStreet Forex Best Awards 2016. If you enjoy our daily reports, you can show your support by voting for us here (be sure to complete the whole survey!). Thank you for your continued support of the FOREX.com research team! *
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.