USD/CAD Deep Dive: Are We Going To Continue Pushing Lower?
Price action has been pretty much one-directional since the initial Covid-19 outbreak in March 2020 as the pair is now on an eleven-month bearish run, consistently creating new lows and now nearing 1.25, a significant psychological level.
Looking at the daily timeframe chart above, major psychological levels are marked by the blue horizontal lines. Price has been forming chart patterns like the descending triangle at the top before breaking through each level.
Currently, price is right at the channel's top and consolidating around it. As 1.25 is the lowest price has reached so far, we are now asking ourselves whether this bear run could be nearing an end or if price will continue pushing lower.
We also have this bearish order block (OB) visible between 1.272 - 1.276, an area to potentially catch a sniper reversal. Most retailers will be going short right at the channel's top, at around 1.269.
We know that banks manipulate price, and therefore I am expecting price to break out of this channel's structure once there is enough liquidity at that OB, until most retailers will change bias, where banks will then reverse and most likely continue pushing to the downside.
On Wednesday the 10th of March at 15:00 GMT, we have the BoC Rate Statement, which is the primary tool the BoC uses to communicate with investors about money supply and interest rates in Canada to meet macroeconomic objectives such as controlling inflation, consumption, growth, and liquidity. Overall, they discuss the economic outlook and offer clues on the outcome of future decisions.
A source from the investment banking group MUFG stated their expectations for the BoC meeting today. They stated "The BoC is expected to acknowledge the stronger growth outlook. Growth in Q4 was twice as strong as the BoC had expected. It is encouraging expectations that the BoC will eventually bring forward plans to tighten policy… The BoC will face a difficult challenge if it wants to dampen the pace of the move higher in Canadian yields in light of improving fundamentals. The BoC is likely to reiterate that it does not plan to raise rates until 2023 at the earliest. The higher price of oil and favourable yield spread developments continue to favour a stronger CAD. It will be hard for the BoC pushback this week".
The Canadian Dollar's primary drivers include the monetary policy. Expectations for policy tightening will likely support CAD, while expectations for policy easing will likely pressure CAD.
The next main driver is Oil, which is Canada's largest export, accounting for over 17% of Canada's exports. As such, CAD is highly correlated with oil prices; strengthening when oil prices rally and weakening when oil prices fall.
We have gathered here that as growth in Q4 was twice as strong than the BoC had expected, it is likely the BoC will bring forward plans to tighten policy, which we know will support and strengthen the CAD. This further supports our bias on USD/CAD as it is likely price will continue pushing lower, breaking through further psychological levels.
Save time looking for setups with the EdgeFinder's watchlist! In a glance, see the EdgeFinder's current top buys and top sells.
Gold is up nearly half a percent today while USD down a third of one as of 10:18 am EST. As we wait for the upcoming and looming NFP numbers this Friday, we can assess the economic data we already have. EdgeFinder Analysis The stock market sighed in relief after the debt ceiling bill finally […]
The dollar flew higher last week as a result of resilient economic news along with a higher PCE than expected. Now the DXY has reached a decision point in price action. This week's NFP will help determine the sentiment around the potential June rate hike. Here is what we are looking at: EdgeFinder Analysis USDCAD […]
Considerably dovish news from central banks in the US and New Zealand has caused a major stir in the markets. Governor Orr and Vice Chairman Powell both released some reassuring news for the economy in the long term. But what does this mean for USD and NZD? EdgeFinder Analysis GBPNZD is a pair that should […]
DISCLAIMER: All comments made by TraderNick’s Forex Group, LLC are for educational and informational purposes only. All comments should not be construed as investment advice regarding the purchase or sale of any securities or financial instrument of any kind. Please consult with your financial adviser before making an investment decision regarding any securities or financial instruments mentioned by TraderNick’s Forex Group, LLC. TraderNick’s Forex Group, LLC assumes no responsibility for your trading and investment results. All information on any of the platforms utilized by TraderNick’s Forex Group, LLC was obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. TraderNick’s Forex Group, LLC, its employees, representatives, and affiliated individuals may have a position or effect transactions in the securities and financial instruments herein and or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies. Trading of any type involves very high risk and may not be suitable for all investors. TraderNick’s Forex Group, LLC, its subsidiaries and all affiliated individuals assume no responsibility for your trading and investment result. Read our full disclaimer here