USD/CAD bulls take back control and eye test of weekly resistance
- USD/CAD picks up bids as the US dollar finds demand on a number of fronts.
- Weekly support is holding up and bulls home in on weekly resistance.
USD/CAD is firm as the greenback hardens up following a bout of weakness pertaining to a strong decline in US consumer confidence last week.
The survey showed US consumer sentiment dropped sharply in early August to its lowest level in a decade.
The fall was one of the six largest drops in the past 50 years of the survey and it underlines a broader concern at economic growth as virus cases rise around the world.
However, while the sentiment is real, the US dollar may find more reasons to stay bid this week and in the build-up to the highly anticipated Jackson Hole between the 26-28 August and PCE data on 27 Aug.
The Federal Open Market Committee minutes will be scanned for signs as to when the Fed might contemplate tapering its bond purchases depending on how much “progress” the Fed sees in the US economy.
Additionally, the US dollar is prone to safe-haven flows at times of risk aversion and at the start of this week, we have seen a modest risk-off tone due to a combination of worse virus numbers and lacklustre data from China.
Meanwhile, a bullish correction on the 10-year US Treasury yield has lifted the greenback as yields correct back into familiar ranges following last week's drop.
''We believe markets overreacted to the consumer confidence data Friday and we look for the dollar to continue clawing back some of its recent losses,'' analysts at Brown Brothers Harriman said.
''We remain positive on the dollar, as stronger US data and hawkish Fed comments are likely to reassert themselves in the market this week.''
As for CAD specifically, its correlation to oil prices is a probable factor leading to weakness in the currency.
WTI spot is lower on the day as red flags of a worsening demand outlook has pressured the black gold.
An OPEC monthly report and the IEA have warnings for the demand outlook.
The IEA last week said that rising demand for crude oil reversed course in July and was expected to increase at a slower rate over the rest of 2021 because of surging COVID-19 infections from the Delta variant.
Meanwhile, providing some stability to oil prices, sources told Reuters that OPEC and its allies believe the markets do not need more oil than they plan to release in the coming months.
In the week ahead, the focus will be on July’s inflation data in Canada where traders will be looking for signals that will leave the Bank of Canada on track to end its asset purchase programme by the end of the year.
As for positioning, net speculators’ long CAD positions edged lower having attempted a recovery the week before, analysts at Rabobank noted.
''Softer Canadian economic data and oil prices are in view. The forthcoming election is also now a focus,'' the analysts said after an official weekend announcement that the elections have been set.
- Canadians will head to the polls on Sept. 20
- USD/CAD: Snap elections to be good news for the loonie – ING
USD/CAD technical analysis
The price is consolidating above weekly support and below weekly resistance which would be expected to give out to the bulls seeking a higher-high in a constructive bullish correction of monthly supply:
