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USD / CAD falls below the 1.2750 level again

  • USD / CAD has seen good moves in both directions on Monday
  • The pair has risen to 1.2780 from previous lows below 1.2700, but is now pulling back below 1.2750.
  • Hectic / indecisive movements in the oil market contribute to mixed sentiment around the CAD.

The pair USD / CAD has seen good moves in both directions on Monday, advancing from the lows of the Asian session below the 1.2700 level to highs below 1.2780. The last 30 pips of this rally from daily lows to daily highs occurred in a move shortly after the London close and has rapidly receded. The currency pair is now consolidating below the 1.2750 level, remaining virtually unchanged throughout the day.

The loonie has now fully returned its gains from last week’s Bank of Canada rate decision and continues to focus attention on the consequences of the Biden administration’s decision to revoke the Keystone XL pipeline permit license to cross the border into the US for environmental reasons. The Prime Minister of Canada, Justin Trudeau and US President Joe Biden have agreed to meet next month, where the Keystone XL pipeline will likely be raised as a topic, although the focus of the meeting is more likely to be on the two countries’ extensive cooperation and efforts to contain the pandemic.

Another topic that will likely be discussed is The Biden Administration’s New “Buy American” Initiative. The US president is expected to sign an executive order on Monday forcing federal procurement contracts to increase their local content. The Canadian Finance Minister said it was concerned about the provisions and said that the issue of free trade would be high on the agenda.

Crude oil market undecided, Canadian dollar undecided

The Hectic / indecisive movements in the oil market contribute to mixed sentiment around the CAD. Crude prices have oscillated between positive and negative territory on Monday. What weighs on WTI is the risk of further vaccine blockages and delays, which are raising concerns about a slower euro zone recovery than previously anticipated. Meanwhile, US and UK are expected to act to restrict international travel, amid an effort to reduce the risk of importing foreign strains of Covid-19, that will hurt fuel demand, while the EU is considering cracking down on movements within the EU. They also keep emerging concerns about the rising (albeit slow) rate of the virus’s spread in China, the world’s largest oil importer. The latest developments are challenging previous bullish sentiment centered on a strong economic recovery fueled by vaccines.

On the supply side, Iraq has said it will produce 3.6 million barrels of oil per day during January. and February to offset the country’s overproduction for much of the past year. “If Iraq succeeds in reducing production to these levels, it would be the lowest production we have seen from them since 2015,” ING notes, before warning that “given Iraq’s record of failing to comply with production cuts, there is no guarantee that this goal will be met”.

USD / CAD tests long-term downtrend

He USD / CAD has tested the resistance of a long-term downtrend recently (tying in the highs of mid / late November, late December and January). The pair has made a false breakout when it briefly spiked to the level of 1.2780, and is now trading below the downtrend and below the level of 1.2750, which implies that (for now) the long-term downtrend remains intact. A break above this downtrend, which is quite possible, would open the door to a test of the level of 1.2800 (January 18 high) and then to the 50-day moving average at 1.2838.

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