Currency Pair of the Week: USD/CAD
Joe Perry January 4, 2021 10:17 PM
Payroll data from both the US and Canada due out Friday can affect USD/CAD!
The US Dollar has been in a freefall since the coronavirus pandemic began in March 2020. Two rounds of fiscal stimulus and an abundance of monetary stimulus have kept the printing machines rolling as the new supply is suppressing the value of the US Dollar. On January 5th, as discussed in the Week Ahead, there will be elections in the US state of Georgia for 2 Senate seats. Currently, Republicans hold a 2-seat majority in the Senate. If both are won by the Democrat candidates, the Senate will be split 50/50. If any bills voted on by the Senate result is a 50/50 tie, the final vote will be cast by Vice President Kamala Harris. Therefore, Democrats would control the Senate. They already have a majority in the House of Representatives. Having both the House and the Senate would allow Democratic President-elect Joe Biden to have a much easily time passing his agenda, including a fresh round of stimulus. Watch the election results on Tuesday evening. If both seats are won by the Democratic candidates, this could push the US Dollar lower. In addition, on Friday the US will release Non-Farm payroll data for December. Expectations are for an increase of only 100,000 jobs, the lowest since the pandemic began. This release may also keep the US Dollar suppressed (lower jobs equal more stimulus).
The Canadian Dollar, on the other hand, has been extremely strong since the beginning of the pandemic. Although Canada has gone through its own fiscal and monetary stimulus measures, PM Justin Trudeau has done a much better job than its US counterpart at controlling the coronavirus, including lockdown measures over the end of year holidays in Ontario and Quebec. As such, the BOC will be in a better position to reduce extraordinary monetary stimulus than will the US Fed. This is helping to add strength to the Canadian Dollar. Given that Canada is a crude exporting country, the Canadian Dollar is also highly correlated to the value of Crude Oil. WTI crude has been moving higher since its lows on April 20th, and the Canadian Dollar is following right along with it. Canada will also be releasing its jobs data on Friday. Expectations are for a decrease of 25,000 jobs in December. The actual difference in job numbers between the US and Canada on Friday could also affect the value of USD/CAD.
As previously mentioned, on a weekly timeframe USD/CAD has been moving lower since the March pandemic high near 1.4667. The pair is currently trading near its post-pandemic lows near 1.2700 and is forming a descending wedge. If price breaks higher out of the wedge, the target is a 100% retracement of the wedge, which is near 1.3390. In addition, also as previously mentioned, the Canadian Dollar and Crude Oil are highly correlated, therefore USD/CAD are highly inversely correlated. The correlation coefficient is currently -.87. For reference, a correlation coefficient of -1.00 means that the 2 assets are perfectly inversely correlated and would move in opposite directions on a one to one basis. Therefore, traders should also be watching crude oil for clues to direction in USD/CAD.
On a 240-minute timeframe, USD/CAD gapped open lower on Monday morning’s reopen below the 161.8% Fibonacci extension level from the September 1st lows to the September 30th highs, near 1.2707. In addition, the pair briefly traded below the lows of December 15th, 2020 at 1.2688. Monday’s lows are key support. If price continues below 1.2665, the next support is at the downward sloping trendline on the weekly near 1.2615, then horizontal support near 1.2527, 1.2247, and 1.2061. Resistance is closer at the gap fill near 1.2752 then horizontal resistance near 1.2820.
Source: Tradingview, City Index
USD/CAD can be in for some volatility this week, depending on the outcome of the elections in Georgia and the payroll reports from both the US and Canada. In addition, Crude Oil may play a factor in determining the direction of USD/CAD over the longer-term.
Learn more about forex trading opportunities.Learn more about commodity trading opportunities.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.