- USD / CAD closed above 1.2600 on Wednesday, Friday ended a seven week high at 1.2649.
- WTI lost 4.1% to $ 75.52, the lowest close since October 4.
- The resurgence of COVID in Europe on Friday results in a US dollar security swap.
- The FXStreet forecast poll predicts that resistance at 1.2660 will hold, followed by consolidation.
USD / CAD finished at its highest level in seven weeks as new Covid restrictions in Europe led to a rally in the security of the US dollar on Friday, ending a week of falling oil prices and improving statistics American economies.
The increase in Covid cases and hospitalizations on the continent has prompted several countries to revert to the policies of the first response to the pandemic last year. Germany has banned unvaccinated people from public places and the Czech Republic has banned them from attending events. Austria instituted home lockdown for the unvaccinated and Sweden ordered a health pass.
Currency markets bought the US dollar in all pairs on Friday except the USD / JPY where the yen itself has a minor safe haven.
West Texas Intermediate (WTI) opened the week at $ 79.79. Wednesday’s close at $ 77.65, down 2.7% to a six-week low, was enough to propel USD / CAD to 1.2612, its first finish above 1.2600 since October 1. After edging up to $ 78.23 on Thursday with a minor drop in USD / CAD to 1.2600, the decline in WTI resumed on Friday. The North American crude oil standard fell 3.4% on the day, ending all five sessions at $ 75.52, down 5.2%.
Since opening Nov. 10 at $ 83.11, WTI has lost 9.1% in eight sessions. This is the largest sustained drop in WTI since falling 10.7% in seven sessions from August 12 to 20. Markets start to take into account the economic drag from new European measures and possibly others in the United States and elsewhere before the end of winter. .
Canadian data was better than expected. Retail sales in September fell 0.6% from the estimated -1.7%. Inflation, like in the United States, was higher than expected in October. The Bank of Canada’s core CPI (BOC) rose 3.8% on the year, compared to 3.7% the previous month, exceeding the 3.5% forecast.
In the United States, Wednesday’s three October releases gave the dollar a solid boost. Retail sales more than doubled to 1.7% from 0.8% in September. Industrial production jumped 1.6% from September’s 1.3% drop. Capacity utilization climbed to 76.4%, its best level since February 2020, from 75.2% in September.
Despite the general expectation of an interest rate hike in the United States, this assumption is highly uncertain.
The current Fed projections, which will be updated at the Dec. 15 Federal Open Market Committee (FOMC) meeting, forecast an increase in federal funds in 2022. The forecast based on federal funds futures calls for two increases next year and one in early 2023.
Accelerating economic growth in the United States and soaring inflation could prompt an advance on the Fed’s reduction schedule which is only set for a cut of $ 15 billion this month and year. next, with an expectation of a direct reduction each month until June.
The resurgence of COVID in Europe brings the possibility of the same to the United States, and the likelihood of the Fed raising rates during lockdowns seems exaggerated.
U.S. Treasury rates fell on Friday when the White House suggested President Biden would make his choice for the Fed chairmanship this weekend. Jerome Powell’s term ends in February and Washington was embroiled in speculation he could be replaced by Fed Governor Lael Brainard. No difference in policy is expected, although Ms Brainard could be seen as slightly more accommodating than Mr Powell. However, she should her post to President Biden, whose party might not want to risk the economic impact of an interest rate hike in 2022, an election year in Congress.
USD / CAD outlook
The prospect of a hike in US Treasury rates is the main source of the recent strength in the USD / CAD. At present, these trends are largely speculative. Markets expect US interest rates to rise, but they haven’t yet.
The 10-year US Treasury yield fell 4 basis points on Friday, closing at 1.548%. That’s 20 basis points below this year’s high of 1.746% on March 31 and between 50 and 100 points below the range for 2018 and 2019.
The combination of falling crude oil prices, sagging Fed bond market support, and security trade towards the dollar as the winter season approaches in the Northern Hemisphere with its likely increases in l impact of Covid, make USD / CAD a strong candidate for an uptrend. When this is added to the largely unrecovered levels of the April 2020 to June 2021 decline of the USD / CAD, the potential for a sustained move towards 1.3000 increases dramatically.
US news is heavily loaded Wednesday before the Thanksgiving holiday on Thursday. Durable goods orders for October should confirm the excellent publication of retail sales. The first revision of Q3 GDP could offer a slight improvement. Better results will support the dollar. There are no Canadian statistics this week.
The USD / CAD bias is higher with the close of the 2021 high of 1.2828 on August 19, the initial target.
Statistics of Canada November 15-November 19
US statistics from November 15 to 19
Statistics of Canada November 22 – November 26
US statistics November 22-26
USD / CAD technical outlook
The signal line’s Moving Average Convergence Divergence (MACD) crossover on October 28 maintains its positive prognosis. The degree of divergence eased slightly on Monday as the USD / CAD fell but widened through Friday. The Relative Strength Index (RSI) is approaching overbought status with its steady rise over the past six weeks, but there is still a buy signal. USD / CAD has gained 2.7% since the close on October 20, a rise that will naturally be reminiscent of traders’ profits.
The two moving averages (MA), the 50-day at 1.2533 and the 100-day at 1.2554 form a support band about 100 points below current levels and coincide with the ranges for November 11-16. This support should hold if USD / CAD falls below 1.2600. The 100-day AD crossed over to the 50-day AD on November 11, indicating that the long-term view is turning more positive. Another level of solid support is the 21 day AD and 200 day AD at 1.2465 and 1.2471.
Strength: 1660, 1.2690, 1.2750, 1.2775, 1.2825
Support; 1.2625, 1.2600, 1.2555, 1.2550
FXStreet Forecast Survey
FXStreet forecast poll predicts failure at 1.2660 resistance followed by consolidation.