USD/CAD seeks new lows as Fed decision looms and oil remains buoyant
James Chen, CMT April 26, 2016 9:20 PM
<p>USD/CAD dropped to approach a new 9-month low on Tuesday as the key Fed policy statement loomed only a day away and crude oil prices neared multi-month highs.</p>
USD/CAD dropped to approach a new 9-month low on Tuesday as the key Fed policy statement loomed only a day away and crude oil prices neared multi-month highs.
The current lows for USD/CAD have been the latest culmination of a strong downtrend that has been in place since January’s long-term highs near 1.4700. This downtrend has largely resulted from the combination of a generally-weakening US dollar and a strengthening Canadian dollar boosted by recovering crude oil prices within the past three months.
During the course of this downtrend, the currency pair has broken down below multiple key support factors, including the 1.4000 and 1.3000 psychological levels, as well as a major uptrend line that extends back to the lows of July 2014. Just last week, USD/CAD turned down sharply from the key 1.3000 psychological resistance level as crude oil prices rebounded, apparently shrugging off the opening plunge after the prior weekend’s failed production freeze negotiations in Doha, Qatar.
Through the course of last week, the currency pair continued to move lower as crude oil remained supported and positive inflation and retail sales data emerged out of Canada late last week, further boosting the Canadian dollar. This prompted USD/CAD to drop well below the 1.2800 level and begin targeting the 1.2500 psychological support objective to the downside.
Further indicating a bearish environment for the currency pair, for the first time since 2014 its 50-day moving average crossed below its 200-day moving average several weeks ago, forming a technical "death cross" and suggesting strong bearish momentum.
Wednesday’s Fed policy statement could potentially contribute to accelerating the current downtrend in the event of a dovish outcome. If the Fed continues its recent trajectory of increasing dovishness after December’s rate hike, the US dollar is likely to continue trading under pressure, which could also give a further boost to crude oil. In that event, the noted 1.2500 psychological level continues to be the downside price area to watch. With any breakdown below 1.2500, the next major downside target is at the 1.2200 support level.
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.