USD/CAD testing key support ahead of FOMC
Fawad Razaqzada December 13, 2016 6:48 PM
The two-day FOMC meeting will conclude on Wednesday at 19:00 GMT and Janet Yellen’s press conference will begin shortly afterwards at 19:30. It could be a long wait until then. Expect to see more chop in the FX markets than a Jackie Chan movie.
The two-day FOMC meeting will conclude on Wednesday at 19:00 GMT and Janet Yellen’s press conference will begin shortly afterwards at 19:30. It could be a long wait until then. Expect to see more chop in the FX markets than a Jackie Chan movie. The Fed will most likely hike rates by 25 basis points. Almost everyone expects that. Thus, for the dollar to strengthen further, the Fed will need to communicate to the markets that it will hike rates more aggressively than expected in 2017. But if the Fed delivers a dovish statement or forward guidance then the dollar could drop sharply in reaction.
Now the dollar has been rising against most major currencies in recent days, but it has really struggled against its northern neighbour. The Canadian dollar has been on a good run thanks mainly to the rising prices of oil. For the USD/CAD in particular, Wednesday will likely be a very volatile day. The oil-linked CAD is likely to move along with crude prices in reaction to the weekly US crude stockpiles report due for release at 15:30 GMT. Prior to this, there will be plenty of second-tier economic data from the US to provide some short-term volatility for the USD. Among other things, we will have retail sales, PPI and industrial production. But the elephant in the room will be the Fed.
The USD/CAD bulls will be desperate to see a more hawkish-than-expected Federal Reserve. The Loonie has been falling sharply ever since that OPEC agreement to cut its supplies in an effort to shore up prices. With oil getting stronger by the day, the USD/CAD could absolutely collapse, especially if the Fed turns out to be less hawkish than expected tomorrow.
But from a technical perspective, the USD/CAD is currently testing another “key” support after breaking several of these levels recently. This one is at 1.31 which is where a rising trend line comes into play. If this potential support also gives way then we may see a much larger correction going forward, though the 200-day average at 1.30705 area may prevent that from happening. Below the moving average is the psychologically-important 1.30 handle where price had bounce from in the past. As this area was also the last swing low, lots of stops are likely to be below here which means there is the possibility for a run on those orders, which, if triggered, could accelerate the downward move towards the 61.8% Fibonacci level at 1.2890, or even lower.
If on the other hand the Loonie turns around here then there is really not much prior reference points to watch until the 1.3240-85 area which was previously support and resistance. This area could then turn into resistance upon a potential re-test.
Source: eSignal and FOREX.com
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.