USD/CAD Weak spot to Persist as RSI Snaps Upward Development

Canadian Greenback Speaking Factors

USD/CAD stays beneath strain after snapping the opening vary for February, and up to date developments within the Relative Power Index (RSI) point out an extra decline within the trade charge because the oscillator fails to retain the upward development from earlier this yr.

Canadian Greenback: USD/CAD Weak spot to Persist as RSI Snaps Upward Development

USD/CAD trades to a contemporary month-to-month low (1.2661) following the failed try to check the January excessive (1.2881), and the rebound from the yearly low (1.2589) seems to have been a correction within the broader development slightly than a change in conduct as key market themes stay in place.

It appears as if the US Greenback will proceed to replicate an inverse relationship with investor confidence because the Federal Reserve depends on its non-standard instruments to realize its coverage targets, and the central financial institution might make the most of its steadiness sheet all through 2021 as Chairman Jerome Powellwarns that “we’re nonetheless very removed from a robust labor market.”

Because of this, swings in threat urge for food might proceed to sway USD/CAD because the the Federal Open Market Committee (FOMC) stays on monitor to “enhance our holdings of Treasury securities by not less than $80 billion per 30 days and of company mortgage-backed securities by not less than $40 billion per 30 days,” and it appears as if the Financial institution of Canada (BoC) will observe the same method as Governor Tiff Macklem and Co. insist that “the Financial institution will proceed its QE (quantitative easing) program till the restoration is properly underway.”

In flip, USD/CAD might proceed to trace a bearish development because the BoC acknowledges that “a broad-based decline within the US trade charge mixed with stronger commodity costs have led to an extra appreciation of the Canadian greenback,” however the tilt in retail sentiment appears poised to persist as merchants have been net-long the pair since Might 2020.

The IG Consumer Sentiment report reveals 68.66% of merchants are nonetheless net-long USD/CAD, with the ratio of merchants lengthy to brief standing at 2.19 to 1.

The variety of merchants net-long is 4.84% increased than yesterday and 9.29% increased from final week, whereas the variety of merchants net-short is 5.07% increased than yesterday and 15.08% increased from final week. The rise in net-short place comes as USD/CAD trades to a contemporary month-to-month low (1.2661), whereas the rise in net-long curiosity has spurred an extra tilt in retail sentiment as 62.30% of merchants had been net-long the pair earlier this week.

With that stated, the rebound from the January low (1.2589) seems to have been a correction within the broader development slightly than a change in conduct as key market themes stay in place, with latest developments within the Relative Power Index (RSI) indicating an extra decline within the trade charge because the oscillator snaps the upward development from earlier this yr.

USD/CAD Fee Day by day Chart

Supply: Buying and selling View

• Have in mind, USD/CAD cleared the January 2020 low (1.2957) following the US election, with the trade charge buying and selling to contemporary yearly lows in November and December because the Relative Power Index (RSI) established a downward development throughout the identical interval.
• USD/CAD began off 2021 by taking out final yr’s low (1.2688) though the RSI broke out of the bearish formation, with lack of momentum to carry above the 1.2770 (38.2% growth) area pushing the trade charge briefly under the Fibonacci overlap round 1.2620 (50% retracement) to 1.2650 (78.6% growth).
• Nonetheless, USD/CAD broke out of the opening vary for January following the string of failed try to shut under the 1.2620 (50% retracement) to 1.2650 (78.6% growth) area, with the RSI diverging with worth because it established an upward development.
• However, the rebound from the January low (1.2589) seems to have been a correction within the broader development slightly than a change in USD/CAD conduct because the trade charge trades under the 50-Day SMA (1.2759) after failing to check the January excessive (1.2881), with the RSI highlighting the same dynamic as the oscillator snaps the upward development from earlier this yr.
• A break/shut under the Fibonacci overlap round 1.2620 (50% retracement) to 1.2650 (78.6% growth) might generate contemporary yearly lows in USD/CAD because it brings the 1.2510 (78.6% retracement) area on the radar, with the subsequent space of curiosity coming in round 1.2440 (23.6% growth).

— Written by David Tune, Forex Strategist

Comply with me on Twitter at @DavidJSong