Is USD/CAD Still Bullish as Breakout Stalls?

CANADIAN DOLLAR FORECAST: USD/CAD PRICE ACTION HITS RESISTANCE – LOONIE COULD STILL HEAD LOWER AS BANK OF CANADA ACTS TO OFFSET CRUDE OIL CRASH & CORONAVIRUS IMPACT

• USD/CAD value motion skyrocketed over 10% year-to-date
• The Canadian Dollar breakdown follows a crash in crude oil
• Financial institution of Canada may minimize rates of interest additional and ship the Loonie decrease

A parabolic climb in spot USD/CAD during the last three months pushed Canadian Greenback decrease by practically 13% to the weakest studying towards its USD peer since January 2016. The plunge within the Canadian Greenback, or Loonie, comes amid the crude oil value struggle and surging US Dollar.

USD/CAD PRICE CHART: MONTHLY TIME FRAME (AUGUST 2001 TO MARCH 2020)

USD/CAD soared above the 1.46 deal with this previous week, however the Canadian Greenback recovered a little bit of misplaced floor throughout Friday’s buying and selling session as spot costs hit resistance. The January 2016 swing excessive of 1.4690 stands out as a transparent technical barrier for USD/CAD value motion. This stage of confluence can also be highlighted by the 76.4% Fibonacci retracement of the FX pair’s lifetime vary.

SPOT USD/CAD & CRUDE OIL PRICE CHART: DAILY TIME FRAME (OCTOBER 2018 TO MARCH 2020)

Chart created by @RichDvorakFX with TradingView

Crashing crude oil costs has pressured the Canadian Greenback decrease versus major currency pairs contemplating the Canadian financial system is extremely depending on oil and power exports. The commodity trades greater than 60% off its year-to-date highs following the novel coronavirus outbreak and oil value struggle sparked by Saudi Arabia.

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The sharp drop in oil is predicted to “weigh closely on the financial system and notably in power intensive areas” in line with the Financial institution of Canada, which largely motivated an emergency rate of interest minimize announced last week. Even after slashing its coverage rate of interest by 100-basis factors already this month, BOC Governor Stephen Poloz said in a press convention late final week that the Governing Council may reveal extra emergency motion if wanted.

CANADIAN DOLLAR TO USD BASIS SWAP UNDERSCORES FX LIQUIDITY STRAIN

Amid liquidity and funding market distress, largely attributable to a worldwide USD scarcity, the fee to hedge forex threat by way of cross-currency foundation swaps have surged. This seemingly exacerbated the upswing within the US Dollar versus its Canadian Greenback counterpart as market demand for safe-haven currencies balloons because of the deepening coronavirus pandemic.

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Though, the Financial institution of Canada simply entered a US Greenback swap line association with the Federal Reserve final Friday to spice up liquidity. In flip, this might alleviate among the pressure not too long ago exerted on the monetary system and facilitate a pullback in spot USD/CAD value motion as liquidity is restored.

CHART OF USD/CAD RISK REVERSAL SUGGESTS MORE PAIN AHEAD FOR THE LOONIE

FX merchants have grown more and more bullish towards USD/CAD judging by the most recent threat reversal measures. The three-month name put skew for USD/CAD was clocked at 4.3175 on Friday, which is its highest studying in at the least 15 years. A threat reversal studying above zero signifies that demand for name choices, or upside safety, outpaces that of put choices, or draw back safety.

That mentioned, there could be potential for the Canadian Greenback to proceed its slide if oil costs stay beneath strain and coronavirus fallout continues to weigh on dealer sentiment. Contemplating that the Financial institution of Canada nonetheless has capability to chop rates of interest additional earlier than reaching the zero-lower sure, and the way Governor Poloz said that the BOC “stands prepared to offer all measures the monetary system wants,” further financial coverage motion could possibly be warranted, which might seemingly stand to weigh negatively on the Loonie and catapult USD/CAD greater.

Learn Extra: US Dollar Climbs as EUR/USD Eyes 2017 Low, USD/JPY & USD/MXN Explode

— Written by Rich Dvorak, Analyst for DailyFX.com

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