Canadian dollar rises on forex against the US dollar
- The USD/CAD pair remains bearish in Forex, but a correction is inevitable.
- The key event of the week will be the US consumer price index and the US dollar.
- The rise in oil prices after the opening of China supports the Canadian dollar.
The USD/CAD pair came under pressure in forex in a key area of the charts as oil prices rose and risky currencies benefited from the opening of Chinese borders. At the time of this writing, the USD/CAD pair is trading in forex at 1.3370 and is down over 0.5% by the end of the first day of the week.
While there is good news in the markets as China reopens, traders are looking forward to US inflation data this week after a series of economic data hitting the market last week from the US economy to start the year. Markets are still digesting Friday’s nonfarm payrolls data, giving credibility to the Fed’s turnaround.
“The employment report was broadly strong as unemployment returned to a cycle low of 3.5%, supporting the view that the labor market remains hot,” Brown Brothers Harriman analysts said. “However, markets focused on a larger-than-expected drop in average hourly earnings to 4.6% year-on-year.” However, analysts argue that “if the labor market remains as tight as it seems, wages are unlikely to fall much.” in the coming months.”
Briefly about the US consumer price index
Meanwhile, the service industry in the US has been horrendously bad and the combined jobs report has painted a picture of economic growth and job creation, but overall activity is slipping into recession territory. This prompted traders to sell the dollar against a range of currencies ahead of US consumer inflation data due later this week.
Price pressure is still a focus for investors, with TD Securities analysts explaining that “underlying prices likely edged up slightly in December as the index rose 0.3% month-on-month after posting 0.2% in November. .
“Housing inflation has likely been the key factor, although we expect property deflation to be the main offset again. Importantly, gasoline prices likely had an additional impact on the consumer price index as they fell sharply in December. Overall, our monthly forecast assumes 6.5%/5.7% yoy for general/base prices.”
If the data surprises on the positive side, it should change the view of investors that the most likely outcome of the February Fed meeting is a 25 bp increase.
Oil rises as China reopens borders
Elsewhere, China continues to lift much of its strict zero-COVID travel rules, reopening its borders to foreign visitors for the first time since imposing travel restrictions in March 2020. The BBC said “incoming travelers will no longer need to be quarantined, marking a significant change in the country’s Covid policy as it battles a rise in cases. They will still need proof of a negative PCR test done within 48 hours of travel.”
As a result, supporting the oil-exporting country’s currency, the Canadian dollar, oil prices jumped early Monday as demand from China improved as the country issues new import quotas and offers economic support to its tumbling economy. Spot West Texas Intermediate oil last rose 1.7% to $74.91 a barrel.
USD/CAD position data
Looking at the positioning data, it should be noted that speculators’ net long positions on the US dollar index remain near their recent lows.
“Despite the Fed’s hawkish tone, net long positions are about half of what they were in August, reflecting peak Fed interest rate talk in recent months. Hopes that the Fed may slow down its pace of rate hikes after the December wage report suggests a further decline in net purchases in the next round of data,” analysts at Rabobank said.
Analysts also explained that a strong Canadian employment report for December could affect the next round of CAD forex position data. “Canadian dollar net short positions have fallen. Last week, they reached their highest level since August 2020,” analysts say.
USD/CAD technical analysis
After hitting the neckline of the weekly M formation, USD/CAD is now testing last month’s low this week and entering a weekly bullish trendline, the more dominant of which is seen below:
USD/CAD weekly chart
USD/CAD is targeting 1.3316 and 1.3225 entering and around the trendline as shown.
USD/CAD daily chart
From a daily perspective, as the USD/CAD pulled sellers up on the breakout of last month’s low, the opening balance for the week is set and it could be the week’s low:
If so, the stuck shorts will be under pressure. A retest of last week’s low near 1.3430 opens the risk of moving in and out of the Fibonacci scale to target the 38.2% ratio, which corresponds to the late December and early January lows as a structure around 1.3470. If the bears get into action at this point, they will be asked to hold course for a repeat of recent lows to target the -272% corrective range ratio, which is in line with prior lows at 1.3316 guarding 1.3220.
USD/CAD H4 chart
From a 4-hour perspective, the M formation meanwhile supports the bullish thesis as it is a reversal pattern that should take the price to the expected resistance around 1.3470. In this regard, the 4-hour bullish close is encouraging:
Ross J. Burland, FXStreet
Ross Berland started his career in the Forex market in the City of London in 2001. Initially working for the forex department of Sucden (UK) Ltd as a corporate salesperson and junior dealer (FSA Qualified Investment Advisor), Ross eventually became an institutional spot forex marketer. . – Worked at the desk before being hired by Investec Bank’s Gresham Street FX department as a sales/trading client, specializing in corporate cash management and specialized finance.
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