Market Analysis – USDCAD
When looking at the past few days we can see the USDCAD pair moves within an upward trend, trading at 1.2159, however, when we look at the price movement this morning we can see that momentum has again built against the US Dollar. Looking at the 1-hour timeframe we can see the last three candlesticks have been on each occasion increasing in size and momentum as the price declines.
Looking at the US Dollar Currency Index, we can see the American currency is weakening, declining by 0.23% this morning. We can also see movement against the US Dollar on its main three competitors the Euro, Pound and Japanese Yen. Looking at the Canadian Dollar, it is not necessarily showing much improvement in comparison to the US Dollar. The Canadian Dollar is declining against both the Euro and Pound, as well as the Australian Dollar, but is showing bullish movement against the Japanese Yen. For this reason, the movement this morning is in favour of the Canadian Dollar and may be more related to the USD rather than the CAD.
The situation in the Canadian economy looks quite stable, however, while market participants are focused on inflation indicators in the US, the same Canadian indicator also exceeded the 2% barrier and is now at 2.2%. Consequently, the Bank of Canada may start thinking about countermeasures as they have previously signalled, though it should be noted we cannot be certain when these measures are likely to be placed.
Yesterday, the American currency index corrected upward renewing weekly highs and confidently consolidated at the level of 90.700 before retracing again back down. The catalyst was the data on Initial Jobless Claims, which amounted to 473,000, which is significantly lower than 507,000 last week. The US labor market is recovering, albeit slowly. Also, the manufacturing sector showed growth. The Producer Price Index rose by 6.2% YoY, which is better than the 5.9% expected by analysts.
There has been a lot of focus on the Federal Reserve and their stance in relation to interest rates. The US Dollar has found strength over the past few days based on strong inflation figures which would normally lead to a rise in interest rates. However, the Federal Reserve has not shown any intentions of doing so anytime soon. On Monday we will have multiple members of the Monetary Committee speaking as part of an online conference. Normally this will be measured as a very low volatility and price driving event. However, under the current tensions between investors and the Fed, the market is likely to be paying close attention to comments for any hints of a change in policy. In the past, the Fed has remained dovish based on the view that inflation may not remain high in the longer term and that unemployment still remains high.
Sales figures for the manufacturing sector are expected to be released today, which are forecasted to grow significantly by 3.5%. If these expectations are not met, this may become another local reason for the weakening of the Canadian Dollar. In addition to the above, the market is also waiting for the release of the US Sales figures for April which are measured as a high volatility and price driving event.
Resistance levels: 1.2220, 1.2315.
Support levels: 1.2135, 1.2047.