USD / CAD firm within weekly downward correction

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  • USD / CAD bulls remain in control as the US dollar is strong.
  • US BoC and oil sentiment supports CAD, but weekly technical data remains bullish.

At the time of writing this report, the USD / CAD it is trading at 1.2575 and slightly 0.14% after rising from a low of 1.2529 and hitting a high of 1.2594. On Monday, the pair touched a five-month low at 1.2807.

The US dollar is firmer on Thursday after dovish guidance from the European Central Bank helped.

The ECB has pledged to keep interest rates at historic lows for longer as the central bank warns that the Delta variant of the new coronavirus poses a risk to the euro zone’s recovery.

The DXY is trading just below 93 after yesterday trading at the highest level since April 1 near 93,191. At the time of writing this report, the index is 0.13% higher than 92.89 and has traveled between a low of 92.507 and a high of 92.923. More gains are expected and it could eventually test the March 31 high near 93,437.

Meanwhile, the price of oil remains in supply and is a support factor for the CAD.

Tighter supply expectations through the end of the year have helped oil rebound from the 8% drop in WTI since the start of the week.

US crude prices rose 1.9% to $ 71.57 a barrel.

In national data, a preliminary estimate from Statistics Canada showed that manufacturing sales increased 1.9% in June, led by the transportation equipment industry.

Looking ahead, markets will follow May’s Canadian retail sales report next Friday, which could offer further clues as to the strength of the national economy.

Regarding positioning, the latest CFTC data has shown that speculative positioning in CAD remained, even after the recent strength of the USD, considerably skewed towards the net long area (+ 20% open interest), and above. of its standard deviation band of 1.

The BoC recently sent a broadly optimistic message on the recovery and left its forward guidance for 2H22 unchanged, which has supported the coin.

The central bank is expected to end asset purchases by the end of 2021, allowing markets to speculate on a hike earlier than projected.

Technical analysis

Contrary to the BoC fundamentals, the technical perspective tells a different story.

The bullish inverse head and shoulders pattern should be noticed on the weekly time frame after the breakout of the dynamic trend line resistance.

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