Canadian Dollar Talking Points
USD/CAD carves a sequence of upper highs and lows after testing the 200-Day SMA (1.2745), and the alternate charge might stage a bigger advance over the approaching days if it clears the opening vary for August.
USD/CAD to Stage Larger Advance on Break Above August Opening Range
USD/CAD seems to be on monitor to take a look at the month-to-month excessive (1.2985) because it retraces the decline the bearish response to the US Consumer Price Index (CPI), and the decline from the yearly excessive (1.3224) might end up to be a correction within the broader development with the Federal Reserve on monitor to implement a restrictive coverage.
At the identical time, contemporary information prints popping out of Canada might hold USD/CAD afloat because the headline studying for inflation is anticipated to sluggish to 7.6% from 8.1% each year in June, and proof of easing worth pressures might drag on the Canadian Dollar because the Bank of Canada (BoC) expects inflation to “come back down later this year, easing to about 3% by the end of next year and returning to the 2% target by the end of 2024.”
As a consequence, the BoC might implement smaller charge hikes over the approaching months after deciding to “front-load the path to higher interest rates” in July, because it stays to be seen if Governor Tiff Macklem and Co. will regulate the ahead steering for financial coverage on the subsequent assembly on September 7 as inflation in Canada appears to have peaked.
Until then, USD/CAD might proceed to retrace the decline from the yearly excessive (1.3224) if it clears the opening vary for August, and an extra advance within the alternate charge might gas the current flip in retail sentiment just like the conduct seen earlier this 12 months.
The IG Client Sentiment report reveals 43.69% of merchants are at present net-long USD/CAD, with the ratio of merchants brief to lengthy standing at 1.29 to 1.
The variety of merchants net-long is 31.35% decrease than yesterday and 25.59% decrease from final week, whereas the variety of merchants net-short is 70.88% greater than yesterday and 59.29% greater from final week. The decline in net-long place comes as USD/CAD approaches the month-to-month excessive (1.2985), whereas the surge in net-short curiosity has fueled the flip in retail sentiment as 61.34% of merchants have been net-long the pair over the last week of July.
With that mentioned, USD/CAD might try to get away of the opening vary for August because it carves a sequence of upper highs and lows after testing the 200-Day SMA (1.2745), and the decline from the yearly excessive (1.3224) might end up to be a correction within the broader development because the shifting common displays a optimistic slope.
USD/CAD Rate Daily Chart
Source: Trading View
- USD/CAD seems to be reversing course following the string of failed makes an attempt to shut beneath the 200-Day SMA (1.2745), with the current sequence of upper highs and lows pushing the alternate charge again above the Fibonacci overlap round 1.2830 (38.2% retracement) to 1.2880 (61.8% growth).
- A break above the month-to-month excessive (1.2985) together with a detailed above 1.2980 (618% retracement) brings the 1.3030 (50% growth) to 1.3040 (50% growth) area on the radar, with a transfer above the 1.3200 (38.2% growth) deal with opening up the yearly excessive (1.3224).
- Next space of curiosity is available in across the 1.3290 (61.8% growth) to 1.3310 (50% retracement) area adopted by the November 2020 excessive (1.3371), however failure to clear the opening vary for August might pull USD/CAD again in the direction of the overlap round 1.2830 (38.2% retracement) to 1.2880 (61.8% growth).
— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong