Canadian Greenback Speaking Factors
USD/CAD preserves the opening vary for February after giving again the bullish response to the better-than-expected Non-Farm Payrolls (NFP) report, however the replace to the US Client Worth Index (CPI) could affect the near-term outlook for the alternate price as inflation is anticipated to extend for the fifth consecutive month.
USD/CAD Fee Defends February Opening Vary Forward of US CPI Report
USD/CAD seems to be caught in an outlined vary following the failed try to check the January excessive (1.2814), and the alternate price could proceed to trace sideways over the near-term as each the Financial institution of Canada (BoC) and Federal Reserve put together to implement larger rates of interest in 2022.
Nonetheless, contemporary figures popping out of the US financial system could prop up USD/CAD because the CPI is anticipated to extend to 7.3% from 7.0% every year in December, which might mark the best studying since 1982, and one other uptick within the index could put strain on the Federal Open Market Committee (FOMC) to normalize financial coverage sooner moderately than later because the central financial institution unveils a extra detailed exit technique.
Proof of stronger inflation could result in an extra shift within the FOMC’s ahead steering for financial coverage because the committee additionally plans to wind down the stability sheet later this yr, and it stays to be seen if Chairman Jerome Powell and Co. will venture a steeper path for the Fed Funds price because the central financial institution is slate to launch the up to date Abstract of Financial Projections (SEP) at its subsequent rate of interest determination on March 16.
Till then, USD/CAD could monitor the yearly vary amid the string of failed try to check the January excessive (1.2814), however the tilt in retail sentiment appears poised to persist as trades have been net-long the pair since late-December.
The IG Client Sentiment report exhibits 67.15% of merchants are at present net-long USD/CAD, with the ratio of merchants lengthy to brief standing at 2.04 to 1.
The variety of merchants net-long is 11.98% larger than yesterday and 19.87% larger from final week, whereas the variety of merchants net-short is 3.68% decrease than yesterday and 13.88% decrease from final week. The rise in net-long curiosity has fueled the crowding conduct as 59.49% of merchants have been net-long USD/CAD final week, whereas the decline in net-short place comes because the alternate price seems to be defending the opening vary for February.
With that mentioned, the decline from the December excessive (1.2964) could transform a near-term correction if USD/CAD manages to clear the month-to-month opening vary, however lack of momentum to check the January excessive (1.2814) could hold the alternate price inside an outlined vary as each the BoC and FOMC put together to shift gears.
USD/CAD Fee Day by day Chart
Supply: Trading View
- Have in mind, USD/CAD traded to a contemporary 2021 excessive (1.2964) in December even because the Relative Strength Index (RSI) diverged with value, however the alternate price seems to be caught in an outlined vary amid the string of failed makes an attempt to check the January excessive (1.2814).
- USD/CAD seems to be defending the opening vary for February because it bounces again forward of final week’s low (1.2650), however want an in depth above the 1.2770 (38.2% enlargement) area to lift the scope for an additional run on the January excessive (1.2814).
- Subsequent space of curiosity is available in round 1.2830 (38.2% retracement) to 1.2880 (61.8% enlargement) adopted by the Fibonacci overlap round 1.2980 (61.8% retracement) to 1.3030 (50% enlargement), which entails the December 2020 excessive (1.3009).
- On the similar time, failure to carry above the overlap round 1.2620 (50% retracement) to 1.2650 (78.6% enlargement) could push USD/CAD in direction of the 1.2510 (78.6% retracement) area, with the break of the January low (1.2450) opening up the 1.2410 (23.6% enlargement) to 1.2440 (23.6% enlargement) space.
— Written by David Track, Forex Strategist
Comply with me on Twitter at @DavidJSong