Oil decline and Brexit issues bashing loonie
USDCAD was 1.2750 by mid-morning on Monday and just flirted with 1.3035 on a combination of falling oil prices and risk aversion from the looming Brexit vote in the UK. Tomorrow’s Canada CPI data should have little to no impact on FX markets due to the Brexit vote and the fact that the Bank of Canada is more concerned with the impact of the Alberta wildfires on the economy. The bank is on hold for the next few months.
The intraday and short term technicals are bullish while trading above 1.2940, supported by this morning’s break above the 1.3020 area and are targeting a retest of the May 2016 peak. The move through 1.2980 which represented the 61% Fibonacci retracement fo the May-June range suggests that a 100% retracement is in order.
WTI oil prices have broken below the uptrend line from the February low at $48.05 which points to further losses toward the $45.00 area.
The mix of Brexit fears and falling oil prices should boost USDCAD and lead to a test of the 200-day moving average
Management and risk description
This is a risky trade as the USDCAD rally from the June low is well underway and vulnerable to a weekend profit taking selloff. The trade is vulnerable to a rally in oil prices or a new bout of “risk seeking” sentiment, perhaps from a fresh Brexit poll with the "Stay" camp holding a decisive lead.
Entry: Buy ½ position of USDCAD at market (Currently 1.3005) Balance at 1.2955
Stop: 1.2930 offered
Time horizon: 3 days
Chart USDCAD 30 minute with second buy level noted
Chart USDCAD 4 hour with Fibonacci retracement levels
Chart: USDCAD 5 year daily with moving averages
— Edited by Clare MacCarthy
Non-independent investment research disclaimer applies. Read more