Canadian Dollar Outlook:
Risk Aversion Halts CAD Strength
The Canadian Dollar is having a meager begin to the week, at the same time as crude oil costs proceed to tick greater. A pointy decline in international fairness markets, significantly these within the United States, is weighing on danger urge for food, stoking demand for secure haven currencies just like the Japanese Yen and US Dollar. Continued beneficial properties in power markets counsel that Canadian Dollar losses needs to be restricted, suggesting that ‘buy the dip’ alternatives are forming within the CAD-crosses.
CAD/JPY Rate Technical Analysis: Daily Chart (January 2021 to January 2022) (Chart 1)
CAD/JPY charges have reversed decrease on the session, with each final Monday’s and right this moment’s each day candlesticks shaping into capturing stars; the wicks above 92.00 counsel significant resistance has been established within the short-term. While greater bond yields and stronger oil costs ought to undermine the attraction of the Japanese Yen, the broader risk-off tone in markets is to this point holding again any extra upside.
Momentum has waned because of this, with CAD/JPY charges falling beneath their each day 5-EMA. Daily MACD is near issuing a bearish crossover (albeit above its sign line), whereas each day Slow Stochastics have continued their descent out of overbought territory. An additional drop to the each day 21-EMA (90.64 on the time of writing) might play out within the short-term earlier than CAD/JPY charges discover their footing for one more try and climb via 92.00, in the end “on course to return to their 2021 high at 93.02 in the coming weeks.”
USD/CAD Rate Technical Analysis: Daily Chart (January 2021 to January 2022) (Chart 2)
USD/CAD charges have stabilized over the previous few days after discovering assist on the uptrend from the June and October 2021 swing lows. Like in CAD/JPY, broad danger aversion is superseding the tailwind that greater oil costs usually present for the Canadian Dollar. Accordingly, it could be the case {that a} additional rally from right here transpires earlier than one other try and breakdown via the aforementioned uptrend. For now, rallies into the each day 21-EMA (1.2650 on the time of writing) look to be bought.
IG Client Sentiment Index: USD/CAD Rate Forecast (January 18, 2022) (Chart 3)
USD/CAD: Retail dealer information reveals 73.80% of merchants are net-long with the ratio of merchants lengthy to quick at 2.82 to 1. The variety of merchants net-long is 6.94% greater than yesterday and 27.50% greater from final week, whereas the variety of merchants net-short is 4.24% decrease than yesterday and unchanged from final week.
We usually take a contrarian view to crowd sentiment, and the actual fact merchants are net-long suggests USD/CAD costs might proceed to fall.
Traders are additional net-long than yesterday and final week, and the mixture of present sentiment and up to date adjustments offers us a stronger USD/CAD-bearish contrarian buying and selling bias.
— Written by Christopher Vecchio, CFA, Senior Strategist
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