CAD paired instruments enjoyed a day filled with volatility as this single currency weakened exponentially in all corners of the FX market. Falling prices of Oil and the deceleration in China have played a heavy part in the sharp fall in the value of the CAD. For the most part of 2015 this single currency has been fundamentally bearish both domestically and globally but as of now with prices of WTI slicing past the 40.00 level with ease, the CAD which is one of the biggest exporter of Oil is feeling the full brunt of this drop.
There has been an influx of undesirable external news which have all played a key role to this snowball of a market the CAD currently resides. Last week the Toronto Exchange registered a triple-digit decline due to the weak energy markets. Every Sell off in China and continual expectations of an interest rate hike from the FED continue to have a gravitational hold on the CAD. Interestingly enough internal news releases such as the CPI and retail sales, all were positive for the CAD. In June alone retail sales printed at 0.6%, compared to the predicted value of 0.3%. On Friday, the latest Core retail sales were released at 0.8% compared to the predicted 0.6% and Retail sales were released three times the predicted value of 0.2%. Regardless of this, once the Caixin Flash Manufacturing PMI for China was released on Friday everything linked to the CAD plunged to the downside.
With Canada, it looks like it has entered a phase where the status of the economy or economic figures which reflect the health of the nation are brushed to one side. It has now become all about oil. Canada is tethered with oil, it seems like the foundations of the economy is reliant on this once expensive commodity. There is a symbiotic relationship in the sense that the lower oil sinks, the lower the CAD finds itself. With WTI currently trading below the 40.00 handle and 25.00 being the next relevant support, things have only just started with the CAD depreciation as global demand continues to decrease whilst worldwide supply from the States, Iran and the Middle east increase at copious rates.
It was only in July the BoC cut interest rates to 0.5% in order to mitigate the effects of falling oil prices and protect the domestic business. There was also an unappetising set of forecasts with the rate decision, these forecasts may actually look more appetising now compared to what the real results may be due to the negative effects which the falling oil prices has had on the Canadian economy and the CAD in general. It was already established that Canada was in fact in a technical recession with Q1 & Q2 results quite contractionary, I will not be surprised if Q3 results fail to impress with the likelihood of another rate cut by the BoC to induce some stability to this already bruised economy.
As of this week, today has been tagged as black Monday. A day where the global markets experienced a selloff and stock markets plunged to new lows. There seem to be long lists of Global uncertainties coming from China, the States, Emerging markets, Gold, Falling Oil prices and Geopolitical tensions with Korea. The amalgamation of this can be reflected throughout the FX markets with previous normality lost. There were no key news releases today, but CB consumer confidence will be released for the States tomorrow. Results should meet expectations and act as just another attribute that may give USD bulls another chance to regain momentum pre NFP next week.
The EURCAD is bullish both fundamentally and technically. Falling prices of oil can be reflected with weakness in the CAD. Today prices have surged to new monthly highs of 1.5559, levels not seen since early 2014. The 3 white soldier candlestick formation does suggest that this may be the start of something greater. It must be put into consideration that prices have almost extended to the monthly R3 levels with a potential correction expected before a further incline to the upside. Today’s daily candle will be very important, but eyes will be on the 1.53X levels in the near future. Leading and lagging indicators both point up and the candlesticks ride the second standard deviation of the Bollinger bands. Conditions may be slightly overbought so a pullback may offer a potential opportunity in the coming future. The trend defining level remains at 1.5000 for the time being.
A potential breakout opportunity resides within the USDCAD. Resistance at 1.3200 has been breached with a further incline to the 1.328 regions. This pair is fundamentally bullish as long as the bearish sentiment on the CAD holds and oil prices keep falling. The technical leading and lagging indicators on this pair agree with the statement above. Prices are above the weekly and monthly pivot and the MACD is about to trade to the upside. Not only is the candlestick above the 20 daily SMA but it looks like we are in the early stages of riding the outer skins of the second standard deviation of the Bollinger bands. A solid daily close above the 1.3200 discusses resistance level may open a path to the next relevant resistance formed around the 1.4000 levels. The trend defining level for this bullish outlook to hold will be the 1.3050 level.
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