The USD/CAD pair dropped to two-week lows, below mid-1.3400’s, during the early European session but has managed to recover few pips thereafter. After repeated failed attempts to make it through the 1.3660-65 supply zone, a combination of factors prompted some aggressive long-unwinding trade and led to a sharp intraday fall of over 180-pips on Thursday. The US Dollar failed to capitalize on yesterday’s early up-move, supported by safe haven-fueled buying interest and reacted negatively to dovish comments by Dallas Fed President Robert Kaplan & falling US Treasury bond yields. The selling pressure aggravated further amid a sharp short-covering rally in crude oil prices, which tend to underpin demand for the commodity-linked currency – Loonie, and the disappointing release of US ISM manufacturing PMI.
strong follow-through move in oil underpinned Loonie
A strong follow-through up-move in oil prices, coupled with a softer tone surrounding the greenback, despite a goodish pickup in the US bond yields, kept exerting some downward pressure for the third consecutive session. However further downside move was prevented owing to investors’ reluctance towards placing aggressive bets ahead of US NFP update and Fed chair speech. Investors are also expected to focus on Sino-U.S. trade negotiation related headlines and rate decision by the Bank of Canada on Wednesday next week for clues on outlook of Dollar and Loonie in immediate and near term market. As of writing this article, USD/CAD pair is trading at 1.3438 down by 0.35% on the day.
If the BOC maintains its bullish bias amid the global storm, the loonie has room to rise. Assuming no crash in oil prices and no hawkish twist from the Fed, the C$ has room to rise sharply. When looking from technical perspective, A follow-through selling has the potential to continue dragging the pair further towards challenging the 1.3400 handle, below which the pair is likely to accelerate the fall towards the 1.3345-40 horizontal support. On the flip side, the 1.3490-1.3500 region now becomes an immediate strong hurdle, which if cleared might trigger a short-covering bounce back towards the 1.3565-70 region en-route the 1.3600 round figure mark.
This article was originally posted on FX Empire
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