Canadian Dollar Talking Points
USD/CAD trades again above the 50-Day SMA (1.2854) because it bounces again from a contemporary month-to-month low (1.2816), and the Federal Reserve rate of interest determination could hold the change price above the shifting common because the central financial institution is predicted to ship one other 75bp price hike.
USD/CAD Climbs Back Above 50-Day SMA Ahead of Fed Rate Decision
USD/CAD makes an attempt to retrace the decline from the beginning of the week regardless of the larger-than-expected decline within the Conference Board’s Consumer Confidence survey, and the Fed’s mountain climbing cycle could hold the change price afloat because the US central financial institution adjusts financial coverage sooner than its Canadian counterpart.
As a consequence, the Federal Open Market Committee (FOMC) price determination could generate a bullish response in USD/CAD because the central financial institution prepares US households and companies for a restrictive coverage, and the change price could proceed to trade to contemporary yearly highs over the approaching months if the committee retains its present strategy in combating inflation.
Source: Atlanta Fed
However, the rising risk of a recession could power the FOMC to ship smaller price hikes because the Atlanta Fed GDPNow mannequin states that the “estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2022 is -1.6 percent on July 19, down from -1.5 percent on July 15,” and a shift within the Fed’s ahead steering could produce headwinds for the US Dollar if Chairman Jerome Powell and Co. look to winddown the mountain climbing cycle over the approaching months.
In flip, USD/CAD could mirror the value motion from May if it struggles to carry above the 50-Day SMA (1.2854), and an extra decline within the change price could gasoline the shift in retail sentiment just like the habits seen earlier this yr.
The IG Client Sentiment report exhibits 61.34% of merchants are at the moment net-long USD/CAD, with the ratio of merchants lengthy to quick standing at 1.59 to 1.
The quantity of merchants net-long is 6.30% larger than yesterday and 21.88% larger from final week, whereas the quantity of merchants net-short is 3.04% decrease than yesterday and seven.14% decrease from final week. The leap in net-long curiosity has fueled the flip in retail sentiment as 60.19% of merchants have been net-long USD/CAD final week, whereas the decline in internet quick place comes because the change price bounces again from a contemporary month-to-month low (1.2816).
With that mentioned, the Fed price determination could hold USD/CAD above the 50-Day SMA (1.2854) so long as the central financial institution retains the present course for financial coverage, however the change price could largely mirror the value motion from May if it fails to carry above the shifting common.
USD/CAD Rate Daily Chart
Source: Trading View
- Keep in thoughts, the failed try to check the November 2020 excessive (1.3371) has led to a near-term pullback in USD/CAD, with the change price now buying and selling again above the 50-Day SMA (1.2854) after struggling to shut beneath the Fibonacci overlap round 1.2830 (38.2% retracement) to 1.2880 (61.8% growth).
- In flip, USD/CAD could push in the direction of the 1.2980 (618% retracement) space because it makes an attempt to retrace the decline from the beginning of the week, however the change price could largely mirror the value motion from May if it struggles to carry above the shifting common.
- An in depth beneath the overlap round 1.2830 (38.2% retracement) to 1.2880 (61.8% growth) brings the 1.2770 (38.2% growth) space on the radar, with a transfer beneath the 200-Day SMA (1.2713) opening up the 1.2610 (50% retracement) to 1.2650 (78.6% growth) area.
- Need a break/shut above 1.2980 (618% retracement) to convey the 1.3030 (50% growth) to 1.3040 (50% growth) area again on the radar, with the subsequent space of curiosity coming in across the 1.3200 (38.2% growth) deal with.
— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong