Greenback Builds a Base, Loonie Eyes Oil

USD/CAD PRICE ACTION BOUNCES OFF TECHNICAL SUPPORT, CANADIAN DOLLAR MIRED BY CRUDE OIL & BOC OUTLOOK

USD/CAD worth motion has fluctuated inside a tough 300-pip buying and selling vary since mid-June. This main foreign money pair has drifted sideways alongside a number of different rangebound markets – like crude oil, the S&P 500, and even Bitcoin – as merchants dangle in ‘wait and see mode’ largely because of the juxtaposition of each bullish and bearish elementary undercurrents.

Urge for food for threat appears to have deteriorated correspondingly as investor optimism wanes amid rising coronavirus circumstances and decelerating restoration in financial exercise. This improvement was simply alluded to within the press assertion accompanying the newest BoC rate of interest determination. Particularly, the Financial institution of Canada acknowledged how financial slack is anticipated to persist as pent-up demand dissipates after reopening from the coronavirus lockdown. The BoC added how it will doubtless create “important disinflationary pressures.”

USD/CAD PRICE CHART: DAILY TIME FRAME (27 DEC 2019 TO 16 JUL 2020)

USD/CAD turned decrease in response to Financial institution of Canada charge outlook offered yesterday, however the Canadian Greenback is at present on tempo to erase almost all of these good points. USD/CAD caught a bid early Thursday round its latest base close to the 1.3500-handle and spot costs have ripped greater by about 70-pips since.

That mentioned, USD/CAD worth motion now flirts technical resistance highlighted by a confluence of the 50-day and 200-day shifting averages along with the 61.8% Fibonacci retracement stage of its year-to-date buying and selling vary. Maybe one other inflow of threat aversion and return of safe-haven demand would possibly give the US Greenback a lift significant sufficient to catalyzes a topside breakout above the bearish trendline prolonged by the sequence of decrease swing highs recorded since mid-March.

However, a ‘death-cross’ looms and will steer spot USD/CAD decrease if the medium time period bearish pattern can overpower the broader bullish pattern. Breaching help underpinned by the 1.3500-price stage would possibly see the Canadian Greenback strengthen additional towards its USD peer with June swing lows probably eyed as the subsequent layer of protection.

CANADIAN DOLLAR INDEX & CRUDE OIL PRICE CHART: 1-HOUR TIME FRAME (20 MAY TO 16 JULY 2020)

Chart created by @RichDvorakFX with TradingView

However, protecting shut tabs on crude oil worth motion could present a sign as to the place the Canadian Greenback and USD/CAD would possibly head subsequent. That is extensively in consideration of the sturdy direct relationship usually maintained between CAD and oil. Crude oil has struggled to surmount the $41.00/bbl worth with the commodity rejecting this stage 3 times since June 23.

As beforehand talked about, expectations for a strong and sustained restoration in world GDP development have been undermined by fading rebounds throughout key financial indicators not too long ago. Not solely does this appear to be protecting a lid on crude oil costs, it seems to have helped kind a high for the Canadian Greenback and base for spot USD/CAD.

If crude oil can eclipse this nearside technical barrier, nevertheless, it might recommend that broader market sentiment stays cautiously optimistic, and probably sign one other broad threat rally lurks on the horizon. This may doubtless stand to drive USD/CAD worth motion decrease in flip.

— Written by Wealthy Dvorak, Analyst for DailyFX.com

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