The US dollar is pushing the major crosses around this morning with commodities and their associated currencies reacting the most. The DXY has risen 0.09% but the USDCAD has moved 0.45% to push through the 1.2800 level. A higher level in the US dollar generally translates to lower commodity prices but the risk-off market has meant some of those moves have gone into precious metals.
USDCAD forex analysis
The London session has started off on the back foot for risk assets. The flows have all been into the safe havens of the Japanese yen, Swiss franc, and the US dollar. The pound and commodities along with equities are declining. This week is going to be one to avoid if you are new to trading as volatility is likely to go through the roof on negative sentiment and central bank monetary policy announcements. China and Hong Kong are celebrating holidays this week just as one of the largest systematic risks to the Asia-Pac financial markets misses its payments due to maturing debt. On the other side of the world, the USA is creeping towards a fiscal cliff which if congress fails to address may see the US Treasury defaulting on its liabilities. This is all happening as global recovery stalls amid a persistent coronavirus pandemic which is causing supply chain disruptions.
The ActivTrades sentiment indicator for the USDCAD is currently showing traders haven’t caught up with today’s current global macro picture. Their short bias on the US dollar versus long bias on the Canadian dollar is probably reflecting their views on the high price levels of oil and commodities currently seen on the charts. Price action is indicating these inflated prices will not be accepted for much longer if we have a greater economic slowdown across the globe.
For the Northern hemisphere, rising inflation is stubbornly not showing signs of being transitory putting pressure on people’s ability to purchase food and durable goods. Companies who rely on supply chains have either got inventory but cannot ship it due to bottlenecks or are waiting for supplies and risk losing contracts if they cannot fulfill orders.
We’re also entering the cooler months usually associated with flu seasons and that can put pressure on companies through employee absenteeism but also pressure on the health services which if they show signs of rising numbers of hospitalization due to COVID-19 and its variants will force the governments to start shutting down movement of people.
The USDCAD has caught a bid as the flows go into the reserve currency with volatility indices showing investors are becoming aware of increasing risks. Friday’s close was very bullish as the USDCAD closed at the day and weeks highs and in the London session, we’ve seen a follow-through. The current trend is higher swing highs and higher swing lows since the bottoming pattern from June 2021 and for mean-reverting traders who are looking to short at resistance the price is approaching an upper bound in a rising trend channel with overhead resistance between the 1.2950- 1.3000 zone.
Brent crude this morning traded below a rising trend line indicating that there could be a change in trend, but oil traders will be looking to see if the $70-$73 range holds as support as a lot of business was done there during late August until last week.
The US dollar is poised for a breakout as momentum is to the upside as seen by the moving averages which are again curling upwards and stacked bullishly. The questions for US dollar bulls are being asked if they have enough buying power to get through the swing high of mid-August. A slightly hawkish tone to this week’s FOMC will no doubt be enough.
With the US dollar and USDCAD approaching resistance levels, it is best to wait for a clear reversal signal or for a breakout above resistance, with a retest and continuation trade in mind.