- USD/CAD has been on the backfoot with and on the verge of a potential unwind of the 20th Nov bid from the 61.8% Fibo level’s support/prior resistance.
- USD/CAD has been on the bid due to a plunge in oil that has dragged Canadian oil prices below their budget level meaning Canadian crude production is now unprofitable.
- Thanksgiving holidays squaring up takes some excess longs out of the game as we move into Asia. USD/CAD is currently trading at 1.3230, down from 1.3317 and up from the lows of 1.3228.
USD/CAD has been in decline following a strong climb from the 1.2782 30th Sep lows that were resulted in due to prior failures up at the 1.3387 late June highs, (76.4% Fibo of early May-Sep lows range).
The bulls took back charge on the route on crude oil that has taken out the 2016-2018 uptrend and 61.8% fibo level around $55 – This is the biggest losing streak on record for WTI and it made its lowest finish year to date overnight when both January WTI futures Brent dropped nearly 7% in Tuesday’s session. This left Canadia crude down at $14/bbl, far below the $35/bbl budget level used for October’s BoC monetary policy report which is a big weight on the value of the Loonie.
“Tuesday’s CAD decline was also compounded by comments from the BoC’s Wilkins as she unveiled the 2021 review of the monetary policy framework, with a focus on unconventional policy and heightened concerns about the *zero lower bound,” analysts at Scotiabank explained – (*Zero lower bound is a problem for Canada’s economy that may occur due to the short-term nominal interest rates near to zero, causing a liquidity trap and limiting the capacity that the BoC has to stimulate economic growth). However, on Wednesday, oil bounced and in WTI terms and the price pierced back through the 61.8% fibo to score a high of $55.89, offering some relief to the Loonie that staged a partial comeback overnight.
In the options space, analysts at Scotiabank explained that measures of implied volatility are picking up and lifting the cost of protection against CAD weakness from relatively low levels. “Speculative CAD positioning remains light and close to neutral”.
USD/CAD levels
We have the 1.3330-40 long-term breakout level just above the market currently but there has been a modest switch in the technical indicator’s readings on Wednesday that means they are no longer decisively bullish following Tuesday’s surge. However, the ADX trend strength indicator is also recovering from its recent multi-decade low but RSI and MACD are less bullish.
“The ascending channel from early October has yet to be broken and its ceiling now roughly coincides with the June high in the upper 1.33s. We look to near-term support between 1.3250 and 1.3220 and note recent resistance around 1.3320,”
analysts at Scotiabank argued.
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