Canadian Dollar, USD/CAD, Crude Oil, Coronavirus Restrictions, IGCS – Talking Points:
- Equity markets crept cautiously higher during APAC trade ahead of tomorrow’s FOMC meeting.
- Stagnating crude oil prices and a flurry of coronavirus restrictions may limit the Canadian Dollar’s upside potential.
- Potential Double Bottom pattern could trigger a bullish reversal for USD/CAD rates.
Asia-Pacific Recap
Equity markets traded cautiously higher during the Asia-Pacific trading session, as investors turn their attention towards tomorrow’s FOMC monetary policy meeting. Australia’s ASX 200 (+0.44), Japan’s Nikkei 225 (+0.21%), Hong Kong’s Hang Seng Index (+0.17%), and China’s CSI 300 (+0.23%) all gained ground.
In FX markets, the Australian Dollar dived lower on surprisingly soft inflation figures, while the haven-associated US Dollar gained ground. Gold prices slipped back below $1770 per troy ounce, as yields on US 10-year Treasuries climbed 1 basis point higher. Crude oil prices held relatively stead at $63 per barrel.
Looking ahead, Canadian retail sales figures for February headline the economic docket.
Climbing Covid-19 Infections, Stagnating Oil Prices to Weigh on CAD
As mentioned in previous reports, the marked tightening of restrictions in several Canadian provinces may open the door for the Loonie to lose ground against its major counterparts in the near term.
Ontario extended its current emergency stay-at-home order, introduced earlier this month, from four to six weeks and has limited essential stores operating capacity to just 25%.
The province has also set up checkpoints along the border with Quebec and Manitoba in order to limit the movement of residents, and the capital city of Toronto’s health authorities have ordered workplaces to close if they have more than five confirmed cases of the novel coronavirus.
Source – Worldometer
The gradual increase of crude oil output by OPEC+ may also cap potential gains for the commodity-sensitive Canadian Dollar in the near term. The cartel agreed to bring around 2.1 million barrels per day of supply back into the market between the start of May and end of July.
Continued consolidation of crude oil prices, and a rather troublesome coronavirus backdrop could anchor the currency against its US Dollar counterparts in the week ahead, as attention shifts to tomorrow Federal Open Market Committee meeting.
USD/CAD Daily Chart – Double Bottom or Bearish Continuation?
Chart prepared by Daniel Moss, created with Tradingview
From a technical perspective, the USD/CAD exchange rate’s outlook appears relatively bearish as prices snap below psychological support at the 1.2500 mark and fall to the lowest levels in 4 weeks.
Indeed, with the RSI and MACD tracking firmly below their respective neutral midpoints, the path of least resistance seems to favour the downside.
However, if the yearly low (1.2365) remains intact, a Double Bottom reversal pattern could be in play, which may ultimately inspire a rebound back to challenge the trend-defining 55-EMA (1.2575) in the near term.
That being said, if key support gives way, a push to challenge the psychologically imposing 1.2300 mark could be on the cards.
The IG Client Sentiment Report shows 75.89% of traders are net-long with the ratio of traders long to short at 3.15 to 1. The number of traders net-long is 7.72% higher than yesterday and 68.68% higher from last week, while the number of traders net-short is 6.65% higher than yesterday and 40.04% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/CAD prices may continue to fall.
Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USD/CAD-bearish contrarian trading bias.
-- Written by Daniel Moss, Analyst for DailyFX
Follow me on Twitter @DanielGMoss