CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
☰
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
✖

USD/CAD may be ready to break down

January 11, 2022 4:49 PM

USD/CAD is close to a key level of 1.2600, which if broken, could set the stage for the direction of the pair for the near-term future.

Like many other currencies, inflation and jobs are the 2 biggest factors in determining the exchange rate.    

  1. The US inflation now stands at 6.8% YoY. Tomorrow, the US releases December’s CPI, which is expected to be 7%
  2. Canadian inflation now stands at 4.7% YoY, its highest reading since February 2003.December’s inflation report will be released next week
  3. US Non-Farm Payrolls have disappointed the last 2 months, with readings of 249,000 and 199,000. Bothe were much weaker than expected
  4. Canada’s Employment Change over the last 2 months was +153,700 and +54,700.Both were stronger than expected
 

Trade USD/CAD now: Login or Open a new account!

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore

Canada has already ended its bond buying program, and some are looking for the Bank of Canada to begin hiking rates at soon as its next meeting on January 26th, having kept rates unchanged at 0.25% at its previous meeting.   In the US, Fed Chairman Powell has indicated that the Fed’s bond buying program will end in March.  Markets are also pricing in a rate hike at the March meeting, and 3 more for the rest of 2022.

USD/CAD is approaching the neckline of a head and shoulders pattern. 

.

If price breaks below the neckline of the pattern at 1.2600, the target is near 1.2240.  However, the pair will first have to pass through support at the 61.8% Fibonacci retracement level from the October 21st, 2021 low to the December 20th, 2021 highs at 1.2566, the 200 Day Moving Average at 1.2500 and horizontal support at 1.2415.   If 1.2600 holds, resistance is at the 50 Day Moving Average at 1.2693, horizontal support at 1.2764 and the December 20th, 2021 highs at 1.2950.

Source: Tradingview, Stone X

Another factor that is important to pay attention to when watching USD/CAD is Crude oil.  Notice at the bottom of the chart below that the two assets are highly negatively correlated at -0.84.  Any reading above +0.80 or below -0.80 is considered a “significant” correlation.  Therefore, if Crude oil continues to move higher, it should cause USD/CAD to move lower.

For reference, WTI Crude Futures are currently trading at resistance at $80.58 as of the time for this writing.

Source: Tradingview, Stone X

Watch for an aggressive break in USD/CAD through 1.2600.  If stops are triggered, the pair could be at the next support level in a hurry.  US CPI and Crude Oil could be factors to help move the pair soon.

Learn more about forex trading opportunities.




StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024