USD/CAD Inclined to Bigger Correction as RSI Divergence Persists

Canadian Greenback Speaking Factors

USD/CAD extends the advance from the January low (1.2590) because the Federal Reserve’s first rate of interest determination for 2021 fails to bolster investor confidence, and the change charge might stage a bigger correction over the rest of the month because the Relative Power Index (RSI) continues to diverge with worth and tracks the upward established earlier this yr.

USD/CAD Inclined to Bigger Correction as RSI Divergence Persists

USD/CAD trades to a contemporary month-to-month excessive (1.2881) because the Federal Open Market Committee (FOMC) insists that “fiscal coverage will assist households and companies climate the downturn in addition to restrict lasting harm to the economic system that might in any other case impede the restoration,” and it appears as if the central financial institution is in no rush to deploy extra unconventional instruments despite the fact that “the tempo of the restoration has moderated in current months.”

The FOMC seems to be on observe to retain the present course for financial coverage because the committee argues that “the lately enacted Coronavirus Response and Reduction Act will present further assist,” and it stays to be seen if Chairman Jerome Powell and Co. will regulate the ahead steering over the approaching months because the central financial institution stays “dedicated to utilizing our full vary of instruments to assist the economic system.”

In flip, an additional deterioration in threat urge for food might maintain USD/CAD afloat because the US Greenback nonetheless displays an inverse relationship with investor confidence, however the tilt in retail sentiment seems poised to persist following the FOMC charge determination as merchants have been net-long the pair since Might 2020.

The IG Consumer Sentiment report reveals 54.12% of merchants are at the moment net-long USD/CAD, with the ratio of merchants lengthy to brief standing at 1.18 to 1. The variety of merchants net-long is 22.39% decrease than yesterday and 39.21% decrease from final week, whereas the variety of merchants net-short is 0.76% decrease than yesterday and 63.44% increased from final week.

The decline in net-long place comes as USD/CAD trades to a contemporary month-to-month excessive (1.2881), whereas the surge in net-short curiosity has helped to alleviate the lean in retail sentiment as 58.66% of merchants have been net-long the pair earlier this week.

It seems as if key market themes will stay in place because the FOMC stays on observe to “enhance our holdings of Treasury securities by no less than $80 billion per 30 days and of company mortgage-backed securities by no less than $40 billion per 30 days,” and the swings in threat urge for food might proceed to sway USD/CAD as main central banks depend on their non-standard instruments to attain their coverage targets.

With that mentioned, USD/CAD might stage a bigger correction over the rest of the month because the FOMC charge determination fails to bolster investor confidence, and the Relative Power Index (RSI) might proceed to diverge with worth because it tracks the upward pattern established earlier this yr.

USD/CAD Fee Every day Chart

Supply: Buying and selling View

• Take note, USD/CAD cleared the January 2020 low (1.2957) following the US election, with the change charge buying and selling to contemporary yearly lows in November and December because the Relative Power Index (RSI) established a downward pattern throughout the identical interval.
• USD/CAD began off 2021 by taking out final yr’s low (1.2688) despite the fact that the RSI broke out of the bearish formation, with lack of momentum to carry above the 1.2770 (38.2% growth) area pushing the change charge briefly beneath the Fibonacci overlap round 1.2620 (50% retracement) to 1.2650 (78.6% growth).
• Nevertheless, USD/CAD broke out of the opening vary for January following the failed try to interrupt/shut beneath the 1.2620 (50% retracement) to 1.2650 (78.6% growth) area, with the RSI diverging with worth because it established an upward pattern.
• USD/CAD might stage a bigger correction following the string of failed try to shut beneath the Fibonacci overlap round 1.2620 (50% retracement) to 1.2650 (78.6% growth) because it trades to contemporary month-to-month highs, however want a detailed above the 1.2880 (61.8% growth) area to deliver the 1.2980 (61.8% retracement) space on the radar.
• Subsequent space of curiosity is available in round 1.3030 (50% growth) to 1.3040 (50% growth) adopted by the 1.3200 (38.2% growth) deal with.

— Written by David Track, Foreign money Strategist

Comply with me on Twitter at @DavidJSong