The biggest news from a technical perspective this morning has been USDCAD's break above 1.10. This is the highest level since August 2009, and is a significant development for this pair. If we can maintain these levels then we may see 1.12 in USDCAD in the coming weeks and months.
USDCAD is turning into one of the most reliable trends in the FX world since the start of this year. There was some stickiness last week, with USDCAD hesitating around the 1.0950 mark; however this was most likely down to profit-taking ahead of the major 1.10 level. Thus, the bulls look like they are back in control and USDCAD managed to clear 1.10 with relative ease early on Tuesday. Right now the bias looks like it may be higher for USDCAD in the near-term. The fundamental drivers include:
1, Expectations that the Bank of Canada will take a dovish stance at Wednesday's meeting. This comes after some weak economic data of late including the labour market report and a sub 50 reading in the Ivey PMI for December.
2, Manufacturing sales data for November is released later on Tuesday, the market expects an increase of 0.3%, however the risks are to the downside after the weak PMI reading.
The chief risk event for USDCAD in the next 24 hours is that the BOC and economic data does not live up to expectations - i.e., the BOC is not as dovish as expected, or the data surprises to the upside. We doubt that the former is likely as the BOC has taken a dovish tone in recent months and the weakness in the December data may justify it staying on this path. If today's data is stronger than expected we could see CAD claw back some recent losses, but we would expect any recovery to be short-term as this data is considered second tier.
USDCAD: Life above 1.10
From a technical perspective, the next key level of resistance to watch out for is 1.1060 - the top of the monthly Ichimoku cloud. If we can get above here then it opens the way to 1.12 (a noted target level from many Investment Banks for this year) and also the highest level since July 2009.
After today's push higher USDCAD is looking overbought on hourly, daily and weekly RSI charts. Thus, we could see a temporary pullback in the short-term. Key support levels include:
◾ 1.0990 - daily pivot
◾1.0965 - 21-hour moving average.
◾1.0919 - the Tenkan line on the daily Ichimoku cloud.
Takeaway: USDCAD broke above key 1.10 resistance earlier, however it is looking overbought and could be due a pullback. We believe that the outlook for this cross is still constructive, especially as we lead up to Wednesday's BOC meeting, and think that a pullback to the 1.0950-60 area could be faded by the market. A break below the Tenkan line on the daily cloud at 1.0920 could signal a deeper pullback is on the cards.
USDCAD is turning into one of the most reliable trends in the FX world since the start of this year. There was some stickiness last week, with USDCAD hesitating around the 1.0950 mark; however this was most likely down to profit-taking ahead of the major 1.10 level. Thus, the bulls look like they are back in control and USDCAD managed to clear 1.10 with relative ease early on Tuesday. Right now the bias looks like it may be higher for USDCAD in the near-term. The fundamental drivers include:
1, Expectations that the Bank of Canada will take a dovish stance at Wednesday's meeting. This comes after some weak economic data of late including the labour market report and a sub 50 reading in the Ivey PMI for December.
2, Manufacturing sales data for November is released later on Tuesday, the market expects an increase of 0.3%, however the risks are to the downside after the weak PMI reading.
The chief risk event for USDCAD in the next 24 hours is that the BOC and economic data does not live up to expectations - i.e., the BOC is not as dovish as expected, or the data surprises to the upside. We doubt that the former is likely as the BOC has taken a dovish tone in recent months and the weakness in the December data may justify it staying on this path. If today's data is stronger than expected we could see CAD claw back some recent losses, but we would expect any recovery to be short-term as this data is considered second tier.
USDCAD: Life above 1.10
From a technical perspective, the next key level of resistance to watch out for is 1.1060 - the top of the monthly Ichimoku cloud. If we can get above here then it opens the way to 1.12 (a noted target level from many Investment Banks for this year) and also the highest level since July 2009.
After today's push higher USDCAD is looking overbought on hourly, daily and weekly RSI charts. Thus, we could see a temporary pullback in the short-term. Key support levels include:
◾ 1.0990 - daily pivot
◾1.0965 - 21-hour moving average.
◾1.0919 - the Tenkan line on the daily Ichimoku cloud.
Takeaway: USDCAD broke above key 1.10 resistance earlier, however it is looking overbought and could be due a pullback. We believe that the outlook for this cross is still constructive, especially as we lead up to Wednesday's BOC meeting, and think that a pullback to the 1.0950-60 area could be faded by the market. A break below the Tenkan line on the daily cloud at 1.0920 could signal a deeper pullback is on the cards.
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