The USDCAD has been in a period of an extended consolidation since the double unimpressive NFP results a few weeks back. Whilst the double barrel scenario failed to materialise, market participants observed the USDCAD trade within a 100 pip range. Unimpressive NFP results in the States compiled with indifferent results for Canada has temporarily halted the bullish technical move. Fundamentally this pair still remains bullish to most investors with 1.3200 remaining as a barrier which may open gates to the next relevant resistance at 1.4000, a price which has not been seen since 2004.
Given the semi-positive week for the USD and negative for the CAD, this does not really reflect on the charts. On Tuesday prelim unit labour costs q/q printed at 0.5% above the 0.0% prediction, businesses are paying more for labour, this positivity should cause a ripple effect and be an addition to the attributes needed for the FED to hike interest rates in September. Most other news releases for the USD printed as expected with a slight negative release on Friday with the Prelim UoM Consumer Sentiment which was released below expectations at 92.9 compared to the forecast of 93.5.
This does raise more questions in regards to the upwards momentum of the USD. Have we entered a period where the USD bulls have lost steam due to the NFP results which failed to meet expectations? For over a whole trading month resistance has held at the 12040 level on the US Dollar index. Wednesday dished a hefty decline with negative JOLTS jobs opening failing expectations. Prices traded back below the light support of 11980, suggesting a potential break to the downside. This decline was no surprise though as a few weeks back it was already identified that the USD had hit a period of sensitivity when any news released had anything to do with employment and the potential hike in September.
WTI took a further beating this week, with a sharp move on Friday sending prices below the 40.00 level. Oil is becoming frightening cheap and this is hitting most large oil corporations and commodity currencies very hard. The attributes which are causing WTI to fall are the ongoing supply glut, increasing output from OPEC and slowdown in the Chinese economy.
Speaking of commodity currencies, the CAD continues to feel the pressure of the falling prices of oil. There was only one major release for Canada this week on Friday and it printed out negative further reinforcing the bearish sentiment most investors possessed for this currency. It looks like Prelim consumer sentiment is weakening in Canada and a further array of negative releases will be expected in the new trading week as long the bearish sentiment holds firmly on both WTI and the Chinese economy.
Focusing back on the technicals, USDCAD is still bullish.
- Prices are trading above the daily 20 SMA
- Prices trades above the weekly and monthly pivot
- The MACD trades to the upside
The USDCAD is technically bullish on the daily timeframe as long as prices can keep above the previous higher low of 1.2900, which is also a key support on the daily timeframe. This has been a week of consolidation but the big resistance can be seen on the 1.3200 level. USDCAD currently resides in a 300 pip range but the break either to the up or downside may be hefty. Above 1.3200 the next critical resistance is at 1.400, a level not seen since 2004. There seems to be a slight clash in regards to weakness. Whilst the CAD remains fundamentally weak due to the heavy falling prices and contraction within the Canadian economy, the USD is also under some pressure as the US Dollar index has failed to break above the 12040 resistance which has been a realistic top since April 2015. The breakout/down strategy above the identified levels of support/resistance seems to be the best approach to the USDCAD as of now.
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