USD/CAD advances on strong dollar, weak crude
James Chen October 27, 2015 11:31 PM
<p>USD/CAD surged above key 1.3200 resistance on Tuesday as the US dollar maintained its rebound of the past week and crude oil plunged once again, […]</p>
USD/CAD surged above key 1.3200 resistance on Tuesday as the US dollar maintained its rebound of the past week and crude oil plunged once again, pressuring the oil-linked Canadian dollar.
Since mid-October, USD/CAD has climbed on a sharp incline from key 1.2800-area support as the US dollar has strengthened and crude oil has nosedived.
Up until Tuesday, the noted 1.3200 resistance level posed a significant barrier to further short-term gains. On Tuesday, however, the currency pair’s bullish momentum broke cleanly above resistance, also rising above its key 50-day moving average in the process.
Crucial events this week will help determine if this rally for USD/CAD should continue as expected. Most importantly, Wednesday’s FOMC statement should prompt some more wild swings for the US dollar as traders decipher clues from the Fed as to when a rate hike may occur. Although there is little chance of the Fed actually raising rates on Wednesday, the wording of the FOMC statement will be analyzed and dissected for hints, and then traded on based upon any potential implications for a future rate hike.
Also on Wednesday, data will be released indicating crude oil inventories in the U.S. for last week. Analysts are expecting an inventory build of 3.3 million barrels, which would be the fifth consecutive week of substantial increases in US crude oil supply. If the actual number comes out even greater than forecasted, we can expect the Canadian dollar to fall further, pushing up the USD/CAD currency pair.
Finally, monthly Canadian GDP data for August is coming out on Friday. The consensus expectation for this key data point is an increase of 0.1%, after the previous two months of positive surprises.
Overall, the outlook for USD/CAD continues to be bullish in line with the long-term, medium-term, and short-term trends. With persistently weak crude oil prices pressuring the Canadian dollar and ongoing speculation over a future Fed rate hike supporting the US dollar, the directional bias for USD/CAD continues to be to the upside.
With any continued upside momentum, the next major target remains at the 1.3400 resistance level, just under September’s 11-year high of 1.3456. Any further push above that high could then target the 1.3600 resistance level. On any pullback for the currency pair, key downside support currently resides at the 1.3000 psychological level.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.