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USD/CAD rises back above 50-day simple moving average ahead of Fed rate decision -by Ecork

Talking points about the Canadian dollar

USD/CAD is trading again above the 50-day simple moving average (1.2854) as it bounces off a new monthly low (1.2816), the Fed rate decision may keep the exchange rate above the moving average as expected for the central bank to do so. Introducing another interest rate increase of 75 basis points.

USD/CAD rises back above 50-day simple moving average ahead of Fed rate decision

The USD/CAD pair has been trying to correct the decline since the beginning of the week despite a larger-than-expected drop in the US dollar Conference Board Consumer Confidence SurveyThe Fed’s raising cycle could keep the exchange rate steady as the US central bank adjusts monetary policy faster than its Canadian counterpart.

As a result, the Federal Open Market Committee (FOMC) The interest rate decision may trigger a bullish reaction for the USD/CAD as the central bank It prepares American families and businesses for restrictive politics, and The exchange rate may continue to trade to new annual highs over the coming months if the committee maintains its current anti-inflation approach.

Federal GDP form now in Atlanta

Source: Atlanta Fed

However, the growing threat of a recession could force the FOMC to raise interest rates less often as the Atlanta Fed model of GDP now states that “Estimated real GDP growth (seasonally adjusted annual rate) in the second quarter of 2022 is -1.6 percent on July 19, down from -1.5 percent on July 15And a shift in the Fed’s future guidance could produce headwinds for the US dollar if the chairman is Jerome Powell And their partners look forward to completing the hiking cycle in the coming months.

In turn, USD/CAD may reverse price action from May if it struggles to hold above the 50-day SMA (1.2854), and further decline in the exchange rate could trigger a shift in retail sentiment such as the behavior seen earlier this year.

Picture of IG customer confidence in USD/CAD rate

The IG Customer Sentiment Report Offers 61.34% of merchants are Currently long net US dollars / Canadian dollars, With the ratio of long-term traders to short selling stands up at 1.59 to 1.

The number of long traders is 6.30% higher than yesterday and 21.88% higher than last week, while the number of short traders is down 3.04% compared to yesterday and 7.14% lower than last week. The jump in net buying fueled the reversal in retail sentiment, as 60.19% of traders were net long USD/CAD last week, while the drop in net shorts comes as the exchange rate bounces back. From a new monthly low (1.2816).

With that said, the Fed rate decision may keep the USD/CAD higher than 50-Day Simple Moving Average (1.285.200)4) As long as the central bank maintains the current course of monetary policy, but the exchange rate may largely reflect the price action from May if it fails to hold above the moving average.

USD/CAD daily chart

USD/CAD daily price chart

source: Trading View

  • Keep in mind that the failed attempt to test the November 2020 high (1.3371) sent the USD/CAD lower in the near term, with the exchange rate now trading above the 50-day simple moving average (1.2854) after struggling to close down Fibonacci Overlap around 1.2830 (38.2% retracement) to 1.2880 (61.8% expansion).
  • Conversely, the USD/CAD pair may push towards 1.2980 (618% retracement) Because it has been trying to correct the decline since the start of the week, but the exchange rate could largely reflect the price action from May if it struggles to stay above the moving average.
  • close down Overlap around 1.2830 (38.2% retracement) to 1.2880 (61.8% expansion) brings the 1.2770 (38.2% expansion) on the radar, with move below the 200-day simple moving average (1.2713) opened the 1.2610 (50% retracement) area to 1.2650 (78.6% expansion).
  • Need to break/close above 1.2980 (618% retracement) To bring 1.3030 (50% expansion) to 1.3040 (50% expansion) Back on the radar, with the next area of ​​interest coming around the 1.3200 handle (38.2% expansion).

— By David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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