During the US session, USD/CAD was trading around $1.3879. The pair is struggling to gain traction amid competing forces. The released US inflation numbers have taken some of the momentum from the dollar. Also, the strong rise in oil prices is helping to strengthen the Canadian dollar, creating additional downward pressure on the pairing, although the overall trend is to the upside.
The US Core CPI for December met expectations, with a month-over-month increase of only 0.2%, and the annual core inflation rate remained at 2.6%, the lowest level in several years. Therefore, many are anticipating that there may be an adjustment made by the Federal Reserve on interest rates later this year, which, in turn, creates downward pressure on the dollar.
Nevertheless, there is a high degree of uncertainty surrounding tomorrow’s retail sales data, which is forecast to be 0.4%, with the majority of the growth coming from auto demand. Until the release of these figures, it is unlikely that anyone would be inclined to take a significant position.
At the moment, the recent rise in oil prices has increased demand for the Canadian dollar as the price of WTI crude exceeds the high of the last two months at around $60.70 per barrel. The recent rise in oil prices coincided with a decrease in the current oil output of Iran due to an announcement made by President Trump regarding the cease in negotiations there and with the ongoing protests going on in the region where Iran derives a large part of its profits from selling oil.
Because of the high price of oil, the strength of the Canadian dollar tends to be supported through Canada’s export of energy. The strength of the Canadian dollar is acting as a lid over the possibility of significant rallies on the USD/CAD currency pair markets despite the mixed overall market sentiment regarding risk.
The environment in the Middle East remains hostile, and as long as such conditions exist and the possibility of trade penalties for countries dealing in oil originating from Iran is still looming, crude oil prices will remain elevated. Therefore, the Canadian dollar strength will likely continue.
The USD/CAD pair is currently experiencing market vacillation from a technical view at this time. The 2-hour chart shows the instrument as being trapped in a tighter channel, but right now it is moving back toward the middle of the channel from the recent surge to $1.3920. The most recent types of candlesticks indicate indecision with regard to price movement because their bodies are fairly small and their wicks are stretched between the prices of $1.3870 and $1.3890.
A previous area of resistance of $1.3840 to $1.3850 is now acting as an area of support, which is in line with the upward-trending 50-period moving average. The 200-period moving average is still above the upward movement of price action, and the USD/CAD pair is therefore still viewed as a weak to medium-term to moderate positive trend unless it drops down to the price level of $1.3790.
USD/CAD Price Chart – Source: Tradingview
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At this time, momentum appears to be neutral. At this juncture, the RSI on an hourly chart is between 48 and 55; there is neither an acceleration nor exhaustion currently occurring. A clean break above $1.3920 would also provide a path for new levels of buying between $1.3965 – $1.3990. Conversely, if the price were to fall below the level of $1.3840, then a significant pullback to levels of $1.3790 could be expected. Hence, the important things to monitor are as follows:
• Tomorrow’s US retail sales and Fed’s response
• The oil market’s response to any developments in the Middle East
• USD/CAD’s ability to retain its level of support at $1.3840.
Trade Strategy: A possible Buy on a dip toward $1.3850, with a Stop-loss set just below $1.3790 and a target of $1.3965.
