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Usd-cad

USDCAD Buy opportunity and counter trade if invalidatedThe USDCAD pair has been trading within a Channel Up since last September (2021). So far it has had three clear Higher Highs and two Higher Lows. Right now the price is very close to that Higher Lows (bottom) trend-line of the pattern and when the 1D MACD makes a Bullish Cross, it will be a confirmed buy. The last symmetrical position for the pair was in Jan 13 - 20 2022, where the price rebounded without making a solid Higher Low. That rise reached higher than the 0.618 Fibonacci retracement level, so using that model, we are setting a medium-term target of 1.28625 on this pair. On the other hand, be prepared to cut losses quickly if the price breaks below the Higher Lows trend-line of the Channel Down, and sell instead towards the -0.618 Fib extension (1.21750). -------------------------------------------------------------------------------------------------------- ** Please support this idea with your likes and comments, it is the best way to keep it relevant and support me. ** --------------------------------------------------------------------------------------------------------
Long
by TradingShot
6
USD/CAD -07/06/2022-• Pair is bullish as long as it is above the weekly ascending trend line labeled in orange • Next target upside is at 1.2950 where price got rejected several times • Will bulls get a successful breakout this time ? • 2 scenario are presented in the chart above • 1st scenario: bulls successfully break the 1.2950 level and continue pushing prices higher • 2nd scenario: bulls fail again and prices start to fall after hitting 1.2950 • Bullish pattern on weekly chart: ascending triangle, which favors a bullish breakout past 1.2950 in the weeks ahead
Long
by RamziAbouAbdallah-CMT
USDCAD potential for drop! | 3rd June 2022On the H4, with price moving below our ichimoku cloud and the recent break of our horizontal support level which is in line with the 28.6% fibonacci retracement level, we have a bearish bias that price will drop to our 1st support at 1.24690 in line with the horizontal swing low support and the 161.8% Fibonacci extension from our 1st resistance at 1.25775. Alternatively, price may break structure and head for our 2nd resistance at 1.26841. Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary, and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interest arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed on the website.
Short
by Rockqet
USD CAD - FUNDAMENTAL DRIVERSUSD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy Monetary Policy At the May meeting, the Fed delivered on hawkish expectations regarding rates by hiking the Fed Funds Rate by 50bsp and also confirmed that the committee expects further 50bsp hikes to be appropriate. The fed also stuck to a familiar hawkish tone by downplaying the prospects of an imminent recession by explaining that even though the economy contracted in Q1, that household spending and business investment remained strong. The Chair also stuck to their guns regarding the rate path by suggesting that they think reaching neutral (currently estimated at 2.4%) before year-end would be appropriate and will assess the need for further hikes when they get there. There were however some less hawkish elements which saw a very classic ‘sell-the-fact’ reaction in major asset classes. The first one was on the Quantitative Tightening front where the bank decided on a phased approach for balance sheet reduction by starting the monthly caps at 30bn (treasuries) and 17.5bn ( MBS ) and pushing it up to the expected $60bn (treasuries) and $35bn ( MBS ) over a three-month timeframe. The second less hawkish element was comments from Chair Powell who took 75bsp hikes off the table saying the committee was not actively considering rate moves of that size. Interestingly, it seems STIR markets did not really believe the Fed as the probability of a 75bsp hike stood at >70% directly following the presser. All-in-all, the meeting provided a short-term ‘sell-the-fact’ opportunity, but also cemented the view that despite signs of a slowing economy and despite clear stress in financial markets, the Fed is sticking to their aggressive tightening for now. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. The USD usually appreciates when growth & inflation slows (disinflation) and depreciates when growth & inflation accelerates (reflation). Thus, current expectations of a cyclical slowdown are a positive driver for the Dollar. Incoming data will be watched in relation to the ‘Fed Put’ as there are many similarities between now and 4Q18, where the Fed were also tightened into a slowdown. If growth data slows and the Fed stays hawkish it’s a positive for the USD, however if the Fed pivots dovish that’ll be a negative driver for the USD. 3. CFTC Analysis Aggregate USD positioning remains close to 1 standard deviation above the mean, and close to prior tops where the USD topped out in previous cycles. That does not change the bullish outlook for the USD in the med-term but means that we would wait for pullbacks before initiating new med-term longs. CAD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy The BoC delivered on expectations with a 50bsp hike as well as announcing a start to passive QT from the end of April by ending its reinvestment of maturing bonds. The bank upgraded both inflation and growth estimates as markets were expecting but did play a hawkish card by also increasing their neutral rate estimate to 2.5% from 2.25%. They acknowledged the growing risks from the current geopolitical situation but made it very clear that they are concerned about inflation and their hike of 50bsp showed that they think that policy needs to be normalized quickly (which some took as a hint that another 50bsp is on the way). The bank didn’t offer any additional clarity on QT but did note that they are not considering active QT of selling bonds just yet. Some conditionality also surfaced, where they explained that any sudden negative shocks to growth or inflation could see them pause hikes once they get closer towards neutral ( Gov Macklem also added that they might need to get rates slightly above neutral in the current cycle). Overall, it was a more hawkish than expected BoC decision, but interesting to note that STIR markets did not price in another 50bsp following the meeting (only a 25bsp) hike. We remain of the opinion that we are close to peak hawkishness for the BoC and are looking for the last push higher in the CAD for opportunities to sell. 2. Intermarket Analysis Oil’s impressive post-covid recovery has been driven by many factors such as supply & demand , global demand recovery, and more recently geopolitical concerns. At current prices the risk to demand destruction and stagflation is high, which means we remain cautious of oil in the med-term . Reason for caution: Synchronised policy tightening targeting demand, slowing growth, consensus longs, steep backwardation curve, heightened implied volatility . We remain cautious oil , but geopolitics are a key driver and focus for Petro-currencies like the CAD (even though the CAD-Oil correlation has been hit and miss). Global Risk Outlook As a high-beta currency, the CAD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the CAD. 3. CFTC Analysis Positioning was more mixed last week for the CAD, but we continue to think that markets are setting up a similar path compared to April 2021, Oct 2021 and Jan 2022 where markets were too aggressive to price in CAD upside only to see majority of it unwind later. As always though, timing those shorts will be very important.
by thunderpips
3
USDCAD Potential bearish drop | 3rd May 2022On the H4, with price moving below our ichimoku cloud and the recent break of our horizontal support level which is in line with the 28.6% fibonacci retracement level, we have a bearish bias that price will drop to our 1st support at 1.24690 in line with the horizontal swing low support and the 161.8% Fibonacci extension from our 1st resistance at 1.25775. Alternatively, price may break structure and head for our 2nd resistance at 1.26841. Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary, and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interest arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed on the website.
Short
by Rockqet
USD CAD - FUNDAMENTAL DRIVERSUSD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy Monetary Policy At the May meeting, the Fed delivered on hawkish expectations regarding rates by hiking the Fed Funds Rate by 50bsp and also confirmed that the committee expects further 50bsp hikes to be appropriate. The fed also stuck to a familiar hawkish tone by downplaying the prospects of an imminent recession by explaining that even though the economy contracted in Q1, that household spending and business investment remained strong. The Chair also stuck to their guns regarding the rate path by suggesting that they think reaching neutral (currently estimated at 2.4%) before year-end would be appropriate and will assess the need for further hikes when they get there. There were however some less hawkish elements which saw a very classic ‘sell-the-fact’ reaction in major asset classes. The first one was on the Quantitative Tightening front where the bank decided on a phased approach for balance sheet reduction by starting the monthly caps at 30bn (treasuries) and 17.5bn ( MBS ) and pushing it up to the expected $60bn (treasuries) and $35bn ( MBS ) over a three-month timeframe. The second less hawkish element was comments from Chair Powell who took 75bsp hikes off the table saying the committee was not actively considering rate moves of that size. Interestingly, it seems STIR markets did not really believe the Fed as the probability of a 75bsp hike stood at >70% directly following the presser. All-in-all, the meeting provided a short-term ‘sell-the-fact’ opportunity, but also cemented the view that despite signs of a slowing economy and despite clear stress in financial markets, the Fed is sticking to their aggressive tightening for now. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. The USD usually appreciates when growth & inflation slows (disinflation) and depreciates when growth & inflation accelerates (reflation). Thus, current expectations of a cyclical slowdown are a positive driver for the Dollar. Incoming data will be watched in relation to the ‘Fed Put’ as there are many similarities between now and 4Q18, where the Fed were also tightened into a slowdown. If growth data slows and the Fed stays hawkish it’s a positive for the USD, however if the Fed pivots dovish that’ll be a negative driver for the USD. 3. CFTC Analysis Aggregate USD positioning remains close to 1 standard deviation above the mean, and close to prior tops where the USD topped out in previous cycles. That does not change the bullish outlook for the USD in the med-term but means that we would wait for pullbacks before initiating new med-term longs. 4. The Week Ahead For the week ahead the focus will fall on the latest PMI releases and of course Friday’s NFP. From the start of the year the USD has been mostly supported on bad data as markets were pricing in a global slowdown in growth. However, the USD’s reaction change, to economic data (negative data impacting the USD negatively) has been important. We think this could be a first step for markets to start pricing in higher probabilities of a less aggressive Fed if negative data continues to build. For the past few months, the labour market data has been solid, not showing the same type of slowing as we’ve seen in other parts of the economy. This should not be much of a surprise as labour data is usually considered as a lagging indicator, meaning that a slowdown in the economy will take longer to show up in the labour market. Even though the data has been solid, we’ve already heard from very big Tech giants like Microsoft , Amazon, Twitter and Facebook that they are planning to slowdown hiring. If the slowdown starts showing up in the labour market, it could add additional pressure on the USD and US10Y . A surprise miss could create some risk positive price action and some USD downside which could offer some attractive short-term opportunities. Risk sentiment will be important to watch after last week’s recovery in risk assets. On the other hand, if the recent risk positive price action runs out of steam, it should be supportive for the USD. For now, the USD is still looking tactically stretched, so we would prefer to look for some short-term downside on a big miss in US economic data as opposed to entering new med-term longs. CAD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy The BoC delivered on expectations with a 50bsp hike as well as announcing a start to passive QT from the end of April by ending its reinvestment of maturing bonds. The bank upgraded both inflation and growth estimates as markets were expecting but did play a hawkish card by also increasing their neutral rate estimate to 2.5% from 2.25%. They acknowledged the growing risks from the current geopolitical situation but made it very clear that they are concerned about inflation and their hike of 50bsp showed that they think that policy needs to be normalized quickly (which some took as a hint that another 50bsp is on the way). The bank didn’t offer any additional clarity on QT but did note that they are not considering active QT of selling bonds just yet. Some conditionality also surfaced, where they explained that any sudden negative shocks to growth or inflation could see them pause hikes once they get closer towards neutral (Gov Macklem also added that they might need to get rates slightly above neutral in the current cycle). Overall, it was a more hawkish than expected BoC decision, but interesting to note that STIR markets did not price in another 50bsp following the meeting (only a 25bsp) hike. We remain of the opinion that we are close to peak hawkishness for the BoC and are looking for the last push higher in the CAD for opportunities to sell. 2. Intermarket Analysis Oil’s impressive post-covid recovery has been driven by many factors such as supply & demand, global demand recovery, and more recently geopolitical concerns. At current prices the risk to demand destruction and stagflation is high, which means we remain cautious of oil in the med-term. Reason for caution: Synchronised policy tightening targeting demand, slowing growth, consensus longs, steep backwardation curve, heightened implied volatility. We remain cautious oil, but geopolitics are a key driver and focus for Petro-currencies like the CAD (even though the CAD-Oil correlation has been hit and miss). Global Risk Outlook As a high-beta currency, the CAD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the CAD. 3. CFTC Analysis Positioning was more mixed last week for the CAD, but we continue to think that markets are setting up a similar path compared to April 2021, Oct 2021 and Jan 2022 where markets were too aggressive to price in CAD upside only to see majority of it unwind later. As always though, timing those shorts will be very important. 4. The Week Ahead For the Canadian Dollar the main focus in the week ahead will of course be the upcoming BoC policy decision on Wednesday. From a baseline perspective, we know that STIR markets have been fully pricing in another 50bsp hike for the bank for quite some time. That’s important as it means a 50bsp by itself won’t be enough to really create volatility unless it’s a smaller or larger than 50bsp hike. That also means that all the attention will fall to the BoC’s tone and language. It’s been a bit too soon to see a spill over of the slowdown in the US into the Canadian economy, and GDP is expected to show another decent print this week. However, cracks have been starting to show, especially in the housing market where rising cost pressures and rising interest rates have been putting pressure on house prices. If that trend continues, and we think it will. It can cause a repricing in growth expectations for Canada and given the high levels of debt will be something the BoC will get more worried about in the months ahead. With all the upside that has been priced into the CAD at the index level, the risk to the downside is higher compared to further risk to the upside going into this week’s BoC. A dovish surprise could offer some upside for EURCAD and AUDCAD in the week ahead.
by thunderpips
Today’s Notable Sentiment ShiftsUSD – The dollar strengthened across the board on Tuesday as Treasury yields climbed and worries over a further acceleration in global inflation depressed investor’s risk appetite. However, Scotia Bank cautions, “the USD is unlikely to rally significantly and (they) still consider price action to reflect the early stages of a broader reversal in the recent USD bull trend.” CAD – The Canadian dollar strengthened to its highest level in nearly six weeks on Tuesday, boosted by recent strength in oil prices and GDP data that showed the economy had momentum heading the second quarter of the year.
TVC:DXY
by thunderpips
2
USDCAD H4 Potential Bounce | 27th May 2022On the H4, with price expected to bounce off the stochastics, we have a bullish bias that price will rise to our 1st resistance at 1.28599 where the horizontal swing high resistance from our 1st support at 1.27126 in line with the swing low support. Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary, and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interest arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed on the website.
Long
by FXCM
1
USDCAD H4 Potential Bounce | 27th May 2022On the H4, with price expected to bounce off the stochastics, we have a bullish bias that price will rise to our 1st resistance at 1.28599 where the horizontal swing high resistance from our 1st support at 1.27126 in line with the swing low support. Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary, and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interest arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed on the website.
Long
by Rockqet
USDCAD potential for drop! | 26th May 2022On the H4, with price moving below the ichimoku, we have a bearish bias that price will drop from our 1st resistance at 1.29039 where the horizontal overlap resistance and 38.2% Fibonacci retracement is to our 1st support at 1.27122 in line with the swing low support. Alternatively, price may break 1st resistance structure and head for 2nd resistance at 1.29667 where the horizontal overlap resistance and 61.8% Fibonacci retracement are. Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary, and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interest arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed on the website.
Short
by Rockqet
USDCAD a turn at the 0.5 Fibonacci 🦐USDCAD on the 4h chart after the test of the 1.30500 level has retraced to the 0.5 Fibonacci area and turn for a test of the 0.382. How can i approach this scenario? I will wait for a potential break of the daily resistance and in that case i ll look for a nice long order according to the Plancton's academy rules --–– Follow the Shrimp 🦐 Keep in mind. 🟣 Purple structure -> Monthly structure. 🔴 Red structure -> Weekly structure. 🔵 Blue structure -> Daily structure. 🟡 Yellow structure -> 4h structure. ⚫️ Black structure -> <4h structure. Here is the Plancton0618 technical analysis , please comment below if you have any question. The ENTRY in the market will be taken only if the condition of the Plancton0618 strategy will trigger
Long
by InkyGrip
4
USD CAD - FUNDAMENTAL DRIVERSUSD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy At the May meeting, the Fed delivered on hawkish expectations regarding rates by hiking the Fed Funds Rate by 50bsp and also confirmed that the committee expects further 50bsp hikes to be appropriate. The fed also stuck to a familiar hawkish tone by downplaying the prospects of an imminent recession by explaining that even though the economy contracted in Q1, that household spending and business investment remained strong. The Chair also stuck to their guns regarding the rate path by suggesting that they think reaching neutral (currently estimated at 2.4%) before year-end would be appropriate and will assess the need for further hikes when they get there. There were however some less hawkish elements which saw a very classic ‘sell-the-fact’ reaction in major asset classes. The first one was on the Quantitative Tightening front where the bank decided on a phased approach for balance sheet reduction by starting the monthly caps at 30bn (treasuries) and 17.5bn ( MBS ) and pushing it up to the expected $60bn (treasuries) and $35bn ( MBS ) over a three-month timeframe. The second less hawkish element was comments from Chair Powell who took 75bsp hikes off the table saying the committee was not actively considering rate moves of that size. Interestingly, it seems STIR markets did not really believe the Fed as the probability of a 75bsp hike stood at >70% directly following the presser. All-in-all, the meeting provided a short-term ‘sell-the-fact’ opportunity, but also cemented the view that despite signs of a slowing economy and despite clear stress in financial markets, the Fed is sticking to their aggressive tightening for now. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. The USD usually appreciates when growth & inflation slows (disinflation) and depreciates when growth & inflation accelerates (reflation). Thus, current expectations of a cyclical slowdown are a positive driver for the Dollar. Incoming data will be watched in relation to the ‘Fed Put’ as there are many similarities between now and 4Q18, where the Fed were also tightened into a slowdown. If growth data slows and the Fed stays hawkish it’s a positive for the USD, however if the Fed pivots dovish that’ll be a negative driver for the USD. 3. CFTC Analysis Aggregate USD positioning remains close to 1 standard deviation above the mean, and close to prior tops where the USD topped out in previous cycles. That does not change the bullish outlook for the USD in the med-term but means that we would wait for pullbacks before initiating new longs with price at new cycle highs. 4. The Week Ahead The USD had an interesting week, where negative data has seen a negative reaction to the USD. This was an important change as the USD has been mostly supported on bad data from the start of 2022 as markets were pricing in a global slowdown in growth. If this trend persists, and markets start pricing in higher probabilities of a less aggressive Fed on more negative data, that could spell some downside for the USD. That makes the Global S&P Flash PMI’s interesting for the USD in the week ahead. Apart from that, the week ahead is very light with the FOMC meeting minutes and Core PCE the main highlights. For the minutes, it’s unlikely that it provides new guidance after the huge amount of Fed speakers we’ve had after the meeting. For Core PCE , the print could be interesting for the USD. A surprise miss could create some risk positive price action and some USD downside which could offer some attractive short-term opportunities. Overall risk sentiment will be very important for the week ahead. Last week was a big capitulation week for risk and was further exacerbated by OpEx volatility . However, the strong recovery in risk assets, possibility driven by dealer and market-marker rebalancing was a promising sign. There is some speculation among analysts that the late-Friday push higher could mark the start of the next bear market going into Core PCE . Further risk off price action should be supportive for the USD, but as the USD is looking tactically stretched, we would prefer to look for some downside on any risk on catalysts. CAD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy The BoC delivered on expectations with a 50bsp hike as well as announcing a start to passive QT from the end of April by ending its reinvestment of maturing bonds. The bank upgraded both inflation and growth estimates as markets were expecting but did play a hawkish card by also increasing their neutral rate estimate to 2.5% from 2.25%. They acknowledged the growing risks from the current geopolitical situation but made it very clear that they are concerned about inflation and their hike of 50bsp showed that they think that policy needs to be normalized quickly (which some took as a hint that another 50bsp is on the way). The bank didn’t offer any additional clarity on QT but did note that they are not considering active QT of selling bonds just yet. Some conditionality also surfaced, where they explained that any sudden negative shocks to growth or inflation could see them pause hikes once they get closer towards neutral ( Gov Macklem also added that they might need to get rates slightly above neutral in the current cycle). Overall, it was a more hawkish than expected BoC decision, but interesting to note that STIR markets did not price in another 50bsp following the meeting (only a 25bsp) hike. We remain of the opinion that we are close to peak hawkishness for the BoC and are looking for the last push higher in the CAD for opportunities to sell. 2. Intermarket Analysis Oil’s impressive post-covid recovery has been driven by many factors such as supply & demand , global demand recovery, and more recently geopolitical concerns. At current prices the risk to demand destruction and stagflation is high, which means we remain cautious of oil in the med-term . Reason for caution: Synchronised policy tightening targeting demand, slowing growth, consensus longs, steep backwardation curve, heightened implied volatility . We remain cautious oil , but geopolitics are a key driver and focus for Petro-currencies like the CAD (even though the CAD-Oil correlation has been hit and miss). Global Risk Outlook As a high-beta currency, the CAD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the CAD. 3. CFTC Analysis Positioning continues to signal bearish signs for CAD with another sizeable net-short weekly change across all 3 participant categories. We think markets are setting up a similar path compared to April 2021, Oct 2021 and Jan 2022 where markets were too aggressive to price in CAD upside only to see majority of it unwind later. As always though, timing those shorts will be very important and catalysts are key. 4. The Week Ahead Oil embargo news and risk sentiment will be the biggest focus points for the CAD this week. On the embargo front, the recent proposals from the EU were enough to see Oil push higher in the short-term, but with a lot of news arguably priced, and with med-term demand downside risks, the picture for oil is very messy right now. Even though the correlation between CAD and oil has been a bit hit and miss these past few weeks, any sudden moves can still affect the CAD. On the risk front, the classic risk sensitivity that one would usually expect from high beta currencies like the AUD, CAD and NZD have returned with a vengeance in the past few trading weeks. That means overall risk sentiment will be an important driver to keep in mind for the CAD. If risk sentiment can put in a bit of a recovery, and as long as we don’t see deterioration in the China covid situation, we would expect further upside for the AUDCAD .
by thunderpips
1
USD CAD - FUNDAMENTAL DRIVERSUSD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy At the May meeting, the Fed delivered on hawkish expectations regarding rates by hiking the Fed Funds Rate by 50bsp and also confirmed that the committee expects further 50bsp hikes to be appropriate. The fed also stuck to a familiar hawkish tone by downplaying the prospects of an imminent recession by explaining that even though the economy contracted in Q1, that household spending and business investment remained strong. The Chair also stuck to their guns regarding the rate path by suggesting that they think reaching neutral (currently estimated at 2.4%) before year-end would be appropriate and will assess the need for further hikes when they get there. There were however some less hawkish elements which saw a very classic ‘sell-the-fact’ reaction in major asset classes. The first one was on the Quantitative Tightening front where the bank decided on a phased approach for balance sheet reduction by starting the monthly caps at 30bn (treasuries) and 17.5bn (MBS) and pushing it up to the expected $60bn (treasuries) and $35bn (MBS) over a three-month timeframe. The second less hawkish element was comments from Chair Powell who took 75bsp hikes off the table saying the committee was not actively considering rate moves of that size. Interestingly, it seems STIR markets did not really believe the Fed as the probability of a 75bsp hike stood at >70% directly following the presser. All-in-all, the meeting provided a short-term ‘sell-the-fact’ opportunity, but also cemented the view that despite signs of a slowing economy and despite clear stress in financial markets, the Fed is sticking to their aggressive tightening for now. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. The USD usually appreciates when growth & inflation slows (disinflation) and depreciates when growth & inflation accelerates (reflation). Thus, current expectations of a cyclical slowdown are a positive driver for the Dollar. Incoming data will be watched in relation to the ‘Fed Put’ as there are many similarities between now and 4Q18, where the Fed were also tightened into a slowdown. If growth data slows and the Fed stays hawkish it’s a positive for the USD, however if the Fed pivots dovish that’ll be a negative driver for the USD. 3. CFTC Analysis Aggregate USD positioning remains close to 1 standard deviation above the mean, and close to prior tops where the USD topped out in previous cycles. That does not change the bullish outlook for the USD in the med-term but means that we would wait for pullbacks before initiating new longs with price at new cycle highs. 4. The Week Ahead The USD had an interesting week, where negative data has seen a negative reaction to the USD. This was an important change as the USD has been mostly supported on bad data from the start of 2022 as markets were pricing in a global slowdown in growth. If this trend persists, and markets start pricing in higher probabilities of a less aggressive Fed on more negative data, that could spell some downside for the USD. That makes the Global S&P Flash PMI’s interesting for the USD in the week ahead. Apart from that, the week ahead is very light with the FOMC meeting minutes and Core PCE the main highlights. For the minutes, it’s unlikely that it provides new guidance after the huge amount of Fed speakers we’ve had after the meeting. For Core PCE, the print could be interesting for the USD. A surprise miss could create some risk positive price action and some USD downside which could offer some attractive short-term opportunities. Overall risk sentiment will be very important for the week ahead. Last week was a big capitulation week for risk and was further exacerbated by OpEx volatility. However, the strong recovery in risk assets, possibility driven by dealer and market-marker rebalancing was a promising sign. There is some speculation among analysts that the late-Friday push higher could mark the start of the next bear market going into Core PCE. Further risk off price action should be supportive for the USD, but as the USD is looking tactically stretched, we would prefer to look for some downside on any risk on catalysts. CAD FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy The BoC delivered on expectations with a 50bsp hike as well as announcing a start to passive QT from the end of April by ending its reinvestment of maturing bonds. The bank upgraded both inflation and growth estimates as markets were expecting but did play a hawkish card by also increasing their neutral rate estimate to 2.5% from 2.25%. They acknowledged the growing risks from the current geopolitical situation but made it very clear that they are concerned about inflation and their hike of 50bsp showed that they think that policy needs to be normalized quickly (which some took as a hint that another 50bsp is on the way). The bank didn’t offer any additional clarity on QT but did note that they are not considering active QT of selling bonds just yet. Some conditionality also surfaced, where they explained that any sudden negative shocks to growth or inflation could see them pause hikes once they get closer towards neutral (Gov Macklem also added that they might need to get rates slightly above neutral in the current cycle). Overall, it was a more hawkish than expected BoC decision, but interesting to note that STIR markets did not price in another 50bsp following the meeting (only a 25bsp) hike. We remain of the opinion that we are close to peak hawkishness for the BoC and are looking for the last push higher in the CAD for opportunities to sell. 2. Intermarket Analysis Oil’s impressive post-covid recovery has been driven by many factors such as supply & demand, global demand recovery, and more recently geopolitical concerns. At current prices the risk to demand destruction and stagflation is high, which means we remain cautious of oil in the med-term. Reason for caution: Synchronised policy tightening targeting demand, slowing growth, consensus longs, steep backwardation curve, heightened implied volatility. We remain cautious oil, but geopolitics are a key driver and focus for Petro-currencies like the CAD (even though the CAD-Oil correlation has been hit and miss). Global Risk Outlook As a high-beta currency, the CAD usually benefits from overall positive risk sentiment as well as environments that benefit pro-cyclical assets. Thus, both short-term (immediate) and med-term (underlying) risk sentiment will always be a key consideration for the CAD. 3. CFTC Analysis Positioning continues to signal bearish signs for CAD with another sizeable net-short weekly change across all 3 participant categories. We think markets are setting up a similar path compared to April 2021, Oct 2021 and Jan 2022 where markets were too aggressive to price in CAD upside only to see majority of it unwind later. As always though, timing those shorts will be very important and catalysts are key. 4. The Week Ahead Oil embargo news and risk sentiment will be the biggest focus points for the CAD this week. On the embargo front, the recent proposals from the EU were enough to see Oil push higher in the short-term, but with a lot of news arguably priced, and with med-term demand downside risks, the picture for oil is very messy right now. Even though the correlation between CAD and oil has been a bit hit and miss these past few weeks, any sudden moves can still affect the CAD. On the risk front, the classic risk sensitivity that one would usually expect from high beta currencies like the AUD, CAD and NZD have returned with a vengeance in the past few trading weeks. That means overall risk sentiment will be an important driver to keep in mind for the CAD. If risk sentiment can put in a bit of a recovery, and as long as we don’t see deterioration in the China covid situation, we would expect further upside for the AUDCAD.
by thunderpips