Talking points about the Canadian dollar
USD/CAD has been holding a series of lower highs and lower lows since the start of the week even as the Canadian Consumer Price Index (CPI) rose to its highest level since 1983, but the limited reaction to the Federal Reserve’s semi-annual testimony may It leads to a near-term correction in the exchange rate as the RSI reverses before the overbought zone.
USD/CAD vulnerable to larger correction as RSI reverses ahead of oversold territory
The USD/CAD pair managed to surpass the May high (1.3077) to hit a new high (1.3079) in June, but the exchange rate may largely mimic the price action from last month as the recent rally failed to push the RSI above 70.
As a result, the advance from the June low (1.2518) may continue to unravel as evidence Federal Reserve Chairman Jerome Powell Generating limited reaction in foreign exchange markets, fluctuations in investor confidence could affect USD/CAD ahead of FOMC’s upcoming interest rate decision on July 27 as the central bank chief warns that it will be “extremely difficult” To promote a soft landing of the US economy.
Meanwhile, a Canadian CPI update may encourage the Bank of Canada (BoC) to take additional steps to combat inflation as the headline reading rises to 7.7% from 6.8% annualized in April, with the core rate showing similar dynamics as it widens. to 6.1% from 5.7% over the same period.
Evidence of persistent inflation may prompt the Bank of Canada to normalize monetary policy at a faster pace as the central bank is due to release its updated Monetary Policy Report (MPR) at its next meeting on July 13, and it remains to be seen whether Governor Tiff McClem and Co. It will change the future direction of monetary policy as “The Board of Directors is prepared to act more aggressively if necessary to meet its commitment to achieving the 2% inflation target.“
Until then, the USD/CAD may face a larger correction amid the recovery in the commodity-block currencies, and the exchange rate depreciation may mitigate the recent upturn in retail sentiment like the behavior seen over the previous month.
The IG Customer Sentiment Report It just appears 38.27% of merchants are Currently long net US dollar / Canadian dollar, With the ratio of short to long traders stands up at 1.61 to 1.
The number of long traders is 26.99% higher than yesterday and 2.80% higher than last week, while the number of short traders is down 5.73% compared to yesterday and 28.42% higher than last week. The rise in net long position comes with the USD/CAD pair cutting a series of highs and lower lows since the start of the week, while the jump in net short interest fueled the recent reversal in retail sentiment as 52.85% of traders were net. – The length of the pair last week.
nevertheless, Commodity block currencies may see an even bigger recovery in the coming days Amid improvement in risk appetite, USD/CAD may continue to roll back advance from the month Low (1.2518) Where the RSI reverses before the overbought zone.
USD/CAD daily chart
source: Trading View
- The USD/CAD pair liquidated May Summit (1.3077) As he ascended to a Fresh annual High (1.079) Earlier this month, but failed attempts to close above 1.3030 (50% expanded) to 1.3040 (50% expanded) It may lead to a near-term correction in the exchange rate such as the price movement seen during the previous month.
- The Relative Strength Index (RSI) Highlighting a similar dynamic as the index reverses before the overbought territory, lack of momentum to hold above 1.2980 (61.8% expansion) could push USD/CAD towards Fibonacci overlap around 1.2830 (38.2% retracement) to 1.2880 (extension 6%) 61.8%)) with the bullish momentum waning.
- A move below the 50-day SMA (1.2786) puts the 1.2770 (38.2% expansion) area back on the radar, with the next area of interest around 1.2620 (50% retracement) to 1.2650 (78.6% expansion).
— By David Song, Currency Strategist
Follow me on Twitter at @DavidJSong