USDCAD rebounds off 3-month low, looks oversold [Video]

(Melina Deltas, CFTe – XM)

USDCAD has declined considerably after touching the 1.3700 round number, losing more than 3%. During Thursday’s trading session, it posted an almost three-month low of 1.3260, while it is currently not far above that nadir.

The negatively aligned Tenkan- and Kijun-sen lines serve as a testament to the negative short-term momentum that is in place. The Chikou Span, though, is signaling a potentially oversold market; a near-term reversal should thus not be ruled out. The RSI is heading north in the negative region, while the stochastic oscillator posted a bullish crossover within its %K and %D lines in the oversold territory.

Immediate support to further declines may be taking place around the 1.3225 figure, which overlaps with the 200-day simple moving average (SMA). Below that, the 1.2950 barriers could provide additional support in case of steeper losses.

A move to the upside may meet resistance around the 20-day SMA at 1.3375 before challenging the 50-day SMA at 1.3490 and the 1.3515 barriers. The region around the 1.3700 handles could act as an additional level in case of stronger bullish movement.

The short-term picture is looking predominantly bearish at the moment, with price action taking place below the 20- and 50-day SMAs, as well as below the Ichimoku cloud. Any moves beneath the 200-day SMA could switch the longer-term outlook to negative as well.

Fed fillip and other key events

(Giles Coghlan LLB, Lth, MA – HYCM)

The Fed did a quick u-turn from December’s dot plot with Powell open to lower rates should the data dictate a lower terminal rate was needed. The Fed saw disinflationary trends well underway and this immediately lifted precious metals, and stocks, and sent the USD to new yearly lows. The BoE followed the dovish trend and indicated that it is very close to the terminal rate now depending on the path of inflation. This move may help support the UK economy medium term. The ECB took an as-expected rate decision and the focus will now rest on the incoming Eurozone data for the ECB’s next move.

Other key events from the past week

USD: US interest rate decisions, Feb 1: The Fed was expected to hike by 25bps this week which it did, but could this be the last hike? The focus now is on the slower pace of rates ahead that Powell was potentially considering.

GBP: BoE, Feb 2: The BoE was expected to hike by 50 bps and it did. However, this may be the last interest rate hike from the BoE as Governor Bailey said the bank is turning a corner. The question now is if this slower approach from the BoE ends up supporting the GBP medium term.

EUR: ECB, Feb 2: The ECB was expected to hike by 50bps too on Thursday and it did by raising rates to 2.50%. The ECB signaled another 50bps hike for March and the focus will now be on the path of the Eurozone economy moving forward.

Key events for the coming week

AUD: Interest rate decision, Feb 7: Will the last high inflation print put pressure on the RBA to take a more hawkish decision next week? The last print was 7.8% y/y vs the 7.3% expected. STIR markets see an 86% chance of a 15bps hike.

Walmart way: Is it time to walk the Walmart way?

CNY: Chinese Inflation data, Feb 10: The IMF revised global growth forecasts higher last week citing China’s re-opening as a major driver for growth. However, will China’s re-opening end up being inflationary? Inflation is expected to rise to 2% for January y/y vs December’s prior reading of 1.8% y/y.

Read EU PMI data continues to point that any contraction in region will be shallow

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