Could CAD keep extending in overbought conditions?


the Dollar is picking up some bids, which has sent EURUSD and AUDUSD to respective intraday lows at 1.1370 and 0.7301. USDCAD has lifted back above 1.3319 for the first time since Wednesday. There doesn’t appear to have been any particular news catalyst behind the Dollar buying spree, while some market narratives are pointing to a Dollar short covering dynamic ahead of the Trump-Xi risk event. There was a flurry of Dollar shorting after Fed chair Powell’s dovish-leading signalling on Wednesday.

For Loonie on the other hand, the decline in US Treasury yields after Fed chair Powell affirmed a dovish shift in the policy outlook on Wednesday dented upside momentum in USDCAD, though the 33%-plus decline in Oil prices since early October should keep the Canadian Dollar on an overall downward track.

As stated in our post on November 20, technically the USDCAD,In the daily time frame, the cross has been seen moving within an ascending triangle since mid October, rebounding yesterday away from its lower trend line. As the price holds above the rising trend line, USDCAD remains in strong bullish sentiment in the medium picture” – The pair remains well above the 20-day SMA which has been significantly supporting the asset since October 24. The 20-day SMA along with the lower triangle’s trendline provide support to the pair at 1.3215-1.3244 area. Short-term Support is set at 1.3252-1.3280 area. 

Currently as the asset is moving upwards for a second month, the market does not seem to be overbought yet, given that today it is still trading above yesterday’s peak. The momentum indicators keep extending within the positive area. RSI is sloping positively above 50 intraday and in the medium timeframe as well. MACD is increasing above the trigger line. Hence in the medium term, the pair is seen to remain on the upside with some small corrections in the near term. The next immediate Resistance level to be watched is at the 5-month peak, reached just 2 days ago, at 1.3360, while the daily Resistance is at 1.3380 which is the year’s peak.

Another interesting strongly bullish pair, is NZDCAD, which hit the longterm Resistance areas suggested in our November 13 post. However, as the asset is currently trading above the upper weekly Bollinger Band pattern and on the last day of the month, a correction is expected to the downside, after the asset touches the Resistance area at 0.9165-0.9180 area. Immediate Support is set at Fibonacci extensions, at 0.9026 and 0.8960.

Nevertheless, if the Oil prices sustain declines, the Canadian economy will keep being negatively affected by it, as it dents its terms of trade. The Canadian data calendar brings Q3 GDP report later today. The growth is expected to slow to 2.0% q/q growth, down from 2.9% in Q2.

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Andria Pichidi

Market Analyst


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