USDCAD SIGNAL 09-11-2022-: USDCAD sticks to gains above mid-1.3400s amid softer oil prices, modest USD strength.


USDCAD SIGNAL 09-11-2022-: USDCAD sticks to gains above mid-1.3400s amid softer oil prices, modest USD strength.

  • USDCAD catches some bids on Wednesday and is supported by a combination of factors.
  • Retreating oil prices undermines the Loonie and acts as a tailwind amid fresh USD buying.
  • The recent breakdown below the 50-day SMA warrants some caution for bullish traders.

The USDCAD pair attracts some buying on Wednesday and builds on the previous day’s late rebound from its lowest level since September 21. The pair sticks to its gains above mid-1.3400s through the first half of the European session and is supported by a combination of factors.

USDCAD SIGNAL : Crude oil prices have added to the heavy overnight losses and are seen edging lower for the second straight day, which, in turn, is seen undermining the commodity-linked Loonie. Oil’s losses are put down to investors concerns that China’s zero-COVID policy could dent fuel demand in the world’s top crude importer. Furthermore, the American Petroleum Institute reported on Tuesday that US inventories grew by 5.6 million barrels in the week to November 4, further reflecting a drop in demand and continuing to weigh on the black liquid. This, along with the emergence of some buying around the US Dollar, acts as a tailwind for the USDCAD pair.

Despite diminishing odds for more aggressive policy tightening by the Fed, the markets are pricing in at least a 50 bps rate hike in December. This remains supportive of elevated US Treasury bond yields and offers some support to the greenback. Apart from this, a generally weaker tone around the equity markets assists the safe-haven buck to stall its recent downfall to a multi-week low. The upside potential for the USDCAD pair, however, seems limited amid the post-NFP breakdown below the 50-day Simple Moving Average (SMA) key pivotal support near the 1.3500 psychological mark.

USDCAD SIGNAL : From a technical perspective the outlook remains precarious. Tuesday say a break below the neckline of what looks like a head and shoulders topping pattern which has been forming since late September. Tuesday’s volatile breakdown reached a low in the 1.3380s before easing up. Wednesday’s activity has seen a recovery crawl higher as the US Dollar makes a comeback. Price has almost reached the neckline again in the upper 1.34s. The question is whether this is a throwback move for a final ‘air kiss’ goodbye and continuation lower or the breakdown was a bear trap?. A move back below Tuesday’s lows would confirm  downside to targets substantially lower. Taking the height of the pattern as a guide suggests a target as low as 1.3030, whilst a more modest 61.8% extension target would see price fall to 1.3210. A move back above the neckline would reduce the probabilities of a breakdown. A break above 1.3750 negate them. 

Market participants might wish to refrain from placing aggressive bets and prefer to move to the sidelines ahead of the release of the US consumer inflation figures on Thursday. Hence, it will be prudent to wait for strong follow-through buying before confirming a near-term bottom and positioning for any further gains. In the absence of any major market moving  economic releases from the US, speeches by New York Fed President John Williams and Richmond Fed President Thomas Barkin might provide some impetus to the USDCAD pair later during the early North American session.

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