USD/CAD Analysis

• The Fed’s hawkish revaluation weighs on the CAD.
• Demand destruction leaves crude oil muted.

USD/CAD fundamental backdrop

USD/CAD had a roller coaster week after the Bank of Canada (BoC) surprised the markets by raising rates by 100 basis points. The ripple effect has seen money markets price the fedthe next higher rate decision with a 100 basis point call gaining traction. Higher than expected inflationPPI and retail sales data reinforced this outlook as we look to Canadian inflation next week (see the economic calendar below):

USD/CAD ECONOMIC CALENDAR

Source: DailyFX Economic Calendar

Depressed vscoarse oil prices are holding up as the Chinese economy shows signs of slowing despite tight supply fundamentals.

TECHNICAL ANALYSIS

USD/CAD DAILY CHART

Chart prepared by Warren Venketas, GI

Paction of rice on the daily chart USD/CAD is trading at a key inflection point (long-term channel resistance) reaching higher highs. On the contrary, the Relative Strength Index (RSI) reflects the slowing up momentum (red), thus suggesting a bearish divergence. Traditionally, bearish divergence indicates an impending decline, but in the current fundamental backdrop, it’s hard to see that happening in the near term. A confirmatory close/breakout above the ascending channel will invalidate this bearish indication, especially with markets expecting a 100 basis point Fed rate hike.

Key resistance levels:

Main support levels:

• 1.0327 (382.% Fibonacci)
• 20 days EMA (purple)

IG CUSTOMER SENTIMENT DATA: MIXED

IGCS shows that retail traders currently dominate LONG on USD/CADwith 62% of traders currently holding long positions (as of today). At DailyFX, we generally take a contrarian view of crowd sentiment, but after recent shifts in long and short positions, sentiment reveals a watchful bias.

Contact and follow Warren on Twitter: @Wenketas