USD/CAD Rate Pullback Eyes 50-Day SMA

Canadian Dollar Talking Points

USD/CAD seems to be reversing course forward of the November 2020 excessive (1.3371) because it initiates a collection of decrease highs and lows, and the alternate charge could try to check the 50-Day SMA (1.2861) for the second time in July because it extends the decline from the yearly excessive (1.3224).

Canadian Dollar Forecast: USD/CAD Rate Pullback Eyes 50-Day SMA

USD/CAD is on monitor to check the month-to-month low (1.2837) because the current advance within the alternate charge did not push the Relative Strength Index (RSI) into overbought territory, and it stays to be seen if the pair will maintain above the transferring common to reflect the worth motion from earlier this month.

Looking forward, the replace to Canada’s Consumer Price Index (CPI) could maintain USD/CAD below strain because the headline studying is anticipated to extend to eight.4% in June from 7.7% every year the month prior, and proof of persistent inflation could encourage the Bank of Canada (BoC) to ship one other 100bp charge hike on the subsequent assembly on September 7 as “the Governing Council continues to judge that interest rates will need to rise further.”

The shift within the BoC’s method for normalizing financial coverage could maintain USD/CAD below strain as Governor Tiff Macklem and Co. step up their efforts to fight inflation, however the Federal Reserve rate of interest resolution on July 27 could affect the near-term outlook for the alternate charge because the central financial institution exhibits a better willingness to implement a restrictive coverage.

Until then, USD/CAD could stage a bigger correction because it initiates a collection of decrease highs and lows, and an additional decline within the alternate charge could gas the current flip in retail sentiment just like the conduct seen earlier this 12 months.

The IG Client Sentiment report exhibits 60.19% of merchants are at the moment net-long USD/CAD, with the ratio of merchants lengthy to quick standing at 1.51 to 1.

The variety of merchants net-long is 11.14% greater than yesterday and 22.68% greater from final week, whereas the variety of merchants net-short is 9.73% decrease than yesterday and 33.71% decrease from final week. The bounce in net-long curiosity had fueled the shift in retail sentiment as 43.11% of merchants had been net-long USD/CAD final week, whereas the decline in net-short place comes because the alternate charge seems to be reversing course forward of the November 2020 excessive (1.3371).

With that stated, a cloth uptick in Canada’s CPI could generate a bearish response in USD/CAD if it fuels hypothesis for an additional 100bp BoC charge hike, and the alternate charge could try to check the 50-Day SMA (1.2861) for the second time in July because it takes out final week’s low (1.2937).

USD/CAD Rate Daily Chart

Source: Trading View

• USD/CAD seems to be reversing course forward of the November 2020 excessive (1.3371) amid the failed try to shut above the 1.3200 (38.2% growth) deal with, and lack of momentum to carry above the 1.2980 (618% retracement) space could bringing the Fibonacci overlap round 1.2830 (38.2% retracement) to 1.2880 (61.8% growth) on the radar, which traces up with the 50-Day SMA (1.2861).
• It stays to be seen if USD/CAD will proceed to carry above the transferring common like the worth motion seen earlier this month because it initiates a collection of decrease highs and lows, however an in depth under the overlap round 1.2830 (38.2% retracement) to 1.2880 (61.8% growth) opens up the 1.2770 (38.2% growth) space, with a transfer under the 200-Day SMA (1.2701) opening up the 1.2610 (50% retracement) to 1.2650 (78.6% growth) area.
• At the identical time, USD/CAD could proceed to commerce to recent yearly highs in July if it manages to carry above the 50-Day SMA (1.2861), with a transfer above the 1.3030 (50% growth) to 1.3040 (50% growth) area elevating the scope for a transfer again in direction of the 1.3200 (38.2% growth) deal with.

— Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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