Canadian Dollar Outlook:
- Both USD / CAD and CAD / JPY rates have reached a significant state of the art, suggesting that Loonie melting may be complete.
- If market participants start to climb to the top of the wall of concern as a delta option, growth-sensitive assets could quickly be recouped.
- Accordingly IG customer mood index, USD/CAD rates have a short-term mixed cause.
Don’t call it a comeback
It’s no secret that the Canadian dollar has been in trouble. Moving to the second half of July, there was a sharp weakness in the year oil prices have weighed on the Loonie, which is among the most growth-sensitive major currencies. With fears of the delta variant earlier this week rising, the Canadian dollar fell to a lunar low in several months Japanese yen and US dollar.
But now that some sensible thinking is back under control, there is reason to believe that the rise of the delta variant will not trigger locks again. Instead, it is simply a new wall of concern for climbing markets in the very ‘gold-locked’ sense of things: worry is enough for the incentive to flow, but not enough to close the door for either Canada or Canada. US economies.
Based on this, it may happen that both CAD / JPY and USD / CAD rates have reached significant technical levels, Loonie decomposition may have reached its end point.
CAD / JPY rate technical analysis: daily graph (June 2020 – July 2021) (Figure 1)
Last week’s previous update stated that “deeper setbacks below 86.00 are possible in subsequent sessions.” CAD / JPY rates fell to a fresh monthly low yesterday, falling to an all-time low of 85.42 in April. However, the failure to exceed the low level in April is a significant development, coupled with a setback that exceeds the Fibonacci 50% retracement between the lowest end of January and the highest in May, 86.09. It is too early to say that a turnaround has taken place, given the CAD / JPY interest rate ratio and its volume indicators, but we have early evidence that a “low” can be found.
USD / CAD interest rate technical analysis: daily chart (June 2020 – July 2021) (Figure 2)
Last week, it was noted that “more rising to April’s highest level (falling key turn) of 1.2654 seems plausible before resistance is found”. USD / CAD rates exceeded this level, trading more than 1,2800 yesterday for the first time since the beginning of February. At the same time, USD / CAD rates fell into two critical levels of resistance, which, if there were ever a “peak”, that would be it.
The downward trend from the highest in January 2016 and below in September 2020 proved to be a huge support in September and November 2020, which proved to be resilient in December 2020. At the same time, the USD / CAD interest rate rally has turned from the lowest in 2012 / the highest in 2016 to 1.2758. Further progress of more than 1,2800 would nullify the prospect that the sale of the Canadian dollar has been completed.
IG Customer Mood Index: USD / CAD Forecast (July 20, 2021) (Figure 3)
USD / CAD: Retailers’ data show that 49.35% of traders are net long, the ratio of short to long traders is 1.03: 1. The number of net long traders is 19.86% yesterday and 23.13% lower than last week. while the number of net-short traders is 5.53% higher than yesterday and 39.80% higher than last week.
Usually, we view the contradictory situation of the crowd and the fact that traders are short indicates an increase in USD / CAD prices.
Positioning is less net short than yesterday, but more net short than last week. The combination of current moods and recent changes gives us an even more confusing trading reason for the USD / CAD.
– Written by Senior Currency Strategist Christopher Vecchio, CFA