USD/CAD surges to approach critical level
James Chen, CMT October 31, 2017 8:04 PM
The past several weeks have not been kind to the Canadian dollar. Less than two weeks ago, key Canadian inflation and retail sales data were released that were significantly lower than expected, which did not bode well for further monetary policy tightening by the data-dependent Bank of Canada. Last week, the BoC indeed held interest rates steady as widely expected, after previously raising rates back-to-back over the summer, but also issued a dovish statement that focused on caution amid uncertainties. These uncertainties included the NAFTA renegotiation, lagging wage growth in the labor market, and lower projections for export growth, housing, and consumption. Most recently, Tuesday saw the release of Canadian GDP figures for August, which came out negative for the first time this year at -0.1%, missing forecasts of +0.1%. This combination of economic data and central bank factors has placed substantial pressure on the Canadian dollar.
The general rise and recovery of the US dollar since early September has combined with this recent Canadian dollar weakness to boost USD/CAD in a sharp uptrend within the past two months. On Tuesday, the currency pair rose once again to approach a major resistance area around: the critical 1.3000 psychological resistance level; 50% of the May-September downtrend; and the 200-day moving average. Most importantly, the 1.3000 resistance level holds major technical significance.
Several key upcoming events that will drive the US dollar this week include Wednesday’s FOMC decision and Friday’s US jobs report. For the Canadian dollar, Friday will also feature Canada’s jobs report. Amid these employment data releases and indications of the Fed’s policy stance via the FOMC statement, the policy contrast/divergence between the Fed and BoC could become even clearer, potentially furthering USD/CAD’s recent bullish run. With any significant breakout above the noted 1.3000 resistance level, the next major upside target resides around the key 1.3200 resistance area.
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.