Canadian Dollar Outlook:
- The Canadian Dollar is benefiting from a rebound in danger urge for food in addition to one other push increased by vitality costs.
- The January Canada jobs report on the finish of the week might short-circuit the Loonie’s rally, if solely briefly.
- According to the IG Client Sentiment Index, USD/CAD charges have a combined bias within the near-term.
CAD Following Oil, Stocks
The Canadian Dollar is having a robust begin to the week as world fairness markets and vitality costs proceed to press increased. And whereas our viewpoint has remained constant in current weeks – that “continued gains in energy markets suggest that Canadian Dollar losses should be limited, suggesting that ‘buy the dip’ opportunities are forming in the CAD-crosses” – the tip of this week might present such a chance.
Incoming Canadian labor market figures are anticipated to be fairly disappointing, with a contraction in each headline jobs progress in addition to a leap within the unemployment price. Should the January Canada jobs report – one pushed by short-term elements such because the surge in COVID-19 omicron variant infections – show disappointing, it very nicely might as soon as once more setup a chance to ‘buy the dip’ in CAD/JPY charges, or conversely, ‘selling the rally’ in USD/CAD charges.
CAD/JPY Rate Technical Analysis: Daily Chart (January 2021 to January 2022) (Chart 1)
CAD/JPY charges haven’t made a lot progress in both route over the previous week, though it must be famous that they proceed to commerce inside the confines of a symmetrical triangle that has been carved out since September 2021. Insofar because the previous transfer was increased, the final word decision of the symmetrical triangle is eyed for a bullish breakout – in keeping with the larger image rally above the descending trendline from the October 2007 (all-time excessive) and December 2014 highs.
Momentum has began to select again up, with CAD/JPY charges on the verge of closing above their every day 8-EMA for the primary time since January 19. Daily MACD’s descent above its sign line is slowing, whereas every day Slow Stochastics have continued their climb out of oversold territory. CAD/JPY charges are nonetheless within the early levels of discovering their footing for one more try to climb by means of 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 reversed decrease after tagging the 38.2% Fibonacci retracement of the 2012 low/2016 excessive vary at 1.2758, suggesting that the rally off of the ascending trendline from the June and October 2021 swing lows has been accomplished. While the roles figures on the finish of the week might show to be an impediment to extra significant losses within the near-term, there’s a cheap technical foundation to recommend {that a} near-term excessive as been established towards 1.2814, the January swing excessive which was not reached; a sequence of decrease highs and decrease lows is in place over the previous month of buying and selling. Ultimately, rallies are nonetheless seeking to be bought for a return again to the June and October 2021 trendline close to 1.2500 by mid-February.
IG Client Sentiment Index: USD/CAD Rate Forecast (January 31, 2022) (Chart 3)
USD/CAD: Retail dealer information exhibits 55.71% of merchants are net-long with the ratio of merchants lengthy to brief at 1.26 to 1. The variety of merchants net-long is 16.07% increased than yesterday and 22.10% decrease from final week, whereas the variety of merchants net-short is 15.10% increased than yesterday and 26.02% increased from final week.
We sometimes take a contrarian view to crowd sentiment, and the very fact merchants are net-long suggests USD/CAD costs might proceed to fall.
Positioning is extra net-long than yesterday however much less net-long from final week. The mixture of present sentiment and up to date adjustments offers us an additional combined USD/CAD buying and selling bias.
— Written by Christopher Vecchio, CFA, Senior Strategist
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