Sive Morten
Special Consultant to the FPA
- Messages
- 18,669
Today guys, we will take a look at CAD as it shows a bit different progress compares to what have been suggested initially. As NAFTA worryings stepped back and taken backseat - now crude oil prices comes again on first stage.
The Canadian dollar weakened to a more than two-week low against its U.S. counterpart on Friday, pressured by a nearly $3 drop in the price of oil and broader gains for the greenback.
"Today's move mostly had to do with the pressure on oil," said Ronald Simpson, managing director, global currency analysis at Action Economics. The price of oil, one of Canada's major exports, tumbled after Saudi Arabia and Russia discussed easing supply curbs that have helped push crude prices to their highest since 2014.
According to CFTC data speculators have boosted bearish bets on the Canadian dollar, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed. As of May 22, net short positions had increased to 26,212 contracts from 23,656 a week earlier.
Still, NAFTA negotiations are not done yet. Although crude oil again becomes "hot topic" now, NAFTA is also important, as D. Trump points on new and new subjects for tariffs. Recently it was commodities, now it could become cars and trucks. Canada has major part of trucks export to US as well, so, initiating of car&truck tariffs will not become something better to Canada instead of commodities tariffs.
Now economists suggest that there is about a 40-percent chance of concluding the renegotiation of NAFTA before Mexico's presidential election on July 1, Mexican Economy Minister Ildefonso Guajardo said.
Also, drop on crude oil could be triggered by V. Putin words, as he said on St. Petersburg economic forum that "we’re perfectly happy with $60 a barrel.” It means that intermediate target on recovery of crude oil market is completed. This also is confirmed by OPEC+ intentions to ease extraction limits and bring more oil to markets. That in turn, could be treated as simultaneous attempt to hold shale oil extraction in US, as its extraction is more expensive.
Technical picture of Crude oil also suggests some pullback as our long-term AB=CD monthly target has been completed and price has stuck in wide K-resistance area. In fact, we've got huge '222" Sell on monthly chart. On weekly chart oil has formed bearish butterfly and reversal week, which suggests downside continuation at least within 1-2 weeks more. But real retracement could be deeper due factors that we've mentioned above.
Speaking on BoC policy - there is no consensus yet. As BoC already has increased rate three times this year, many investors suggest that Central Bank will take pause on nearest meeting, but, other economists think that BoC will try to take pace and keep its policy as closer to Fed as possible:
Uncertain trade policy, including renegotiation of the North American Free Trade Agreement, and indebted consumers will encourage the Bank of Canada to leave its policy interest rate on hold at 1.25 percent next week, a Reuters poll predicted.
But Action Economics and some other forecasters expect the Bank of Canada, which has raised interest rates three times since last summer, to hike at the subsequent policy decision in July. That would help narrow the gap between Canadian and U.S. rates and boost the Canadian dollar, Simpson said.
So, on coming week it seems that crude oil prices will be major driving factors for CAD. Technical picture that we see right now tells about changing sentiment and points that CAD come become weaker.
Technicals
Monthly
Let's take a look at CAD through the prism of crude oil technical picture. Last time we talked on CAD month ago and our attention was focused on downside continuation as we've got a lot of bearish factors - oil prices hit new records week by week, here we've got bearish grabber and "222" Sell" pattern.
Now situation is changing. Here is a big chances that grabber will be cancelled as price already stands above its top and we have just 4 sessions till the end of the May. "222" Sell mostly has been completed because it has hit minor target of 3/8 retracement down. Trend here has turned bullish.
It means that upside action here will continue, reaction on strong support area of OP target and K-support is not finished yet and price should climb higher.
Weekly
Weekly picture also looks bullish and it shows a sequence of targets here. First of all - we have multiple bullish grabbers, first one was formed even in April and all of them suggest action above K-resistance and Agreement area.
Since situation on monthly chart also has changed - it seems that recent drop was just a reaction on first touch of strong resistance and now market is re-establishing upside trend.
Right now we're interested only with 1.3285 target - 1.27 butterfly "Sell" extension, because others stand above weekly OB. They are 1.3490 and 1.3630 - final XOP target of our AB=CD pattern.
Fundamental background of seasonal oil trend and possible flat BoC decision on interest rates could support this action.
Daily
Trend here also stands bullish. Market has passed through important natural support/resistance border and now it has space till previous tops.
Previously we've talked about uncompleted XOP target and warned that this is bad sign and market could return back to it. It seems that now time has come. We have two different AB-CD's here. First is initial pattern (blue) and newer one (red). But as XOP as OP stands approximately in the same area - around 1.3160-1.3190 and above recent top, which agrees with weekly grabbers.
Still, even this targets are too extended by far. Take a look that daily OB level hardly will let CAD to climb so high and so fast. On coming week we probably will be focused on reaching of just COP target @ 1.3020 area:
Intraday
4H chart shows nice patterns that point on daily COP target as well. They area butterfly "sell" and inner AB-CD XOP target. Both targets agrees with daily OB area and we could suggest that 1.3050-1.3070 will be ceil for coming week, if, of course, nothing extra ordinary will happen:
Hourly chart shows another AB=CD pattern. As soon as market will hit OP some pullback could happen. If you're searching chances to go long - keep an eye on strong support area around WPP and watch for bullish continuation patterns, such as "222" Buy:
Conclusion:
As fundamental background for CAD is changing, technical picture is changing as well. Thus, on coming week we're mostly focused on 1.3050-1.3070 target.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
The Canadian dollar weakened to a more than two-week low against its U.S. counterpart on Friday, pressured by a nearly $3 drop in the price of oil and broader gains for the greenback.
"Today's move mostly had to do with the pressure on oil," said Ronald Simpson, managing director, global currency analysis at Action Economics. The price of oil, one of Canada's major exports, tumbled after Saudi Arabia and Russia discussed easing supply curbs that have helped push crude prices to their highest since 2014.
According to CFTC data speculators have boosted bearish bets on the Canadian dollar, data from the U.S. Commodity Futures Trading Commission and Reuters calculations showed. As of May 22, net short positions had increased to 26,212 contracts from 23,656 a week earlier.
Still, NAFTA negotiations are not done yet. Although crude oil again becomes "hot topic" now, NAFTA is also important, as D. Trump points on new and new subjects for tariffs. Recently it was commodities, now it could become cars and trucks. Canada has major part of trucks export to US as well, so, initiating of car&truck tariffs will not become something better to Canada instead of commodities tariffs.
Now economists suggest that there is about a 40-percent chance of concluding the renegotiation of NAFTA before Mexico's presidential election on July 1, Mexican Economy Minister Ildefonso Guajardo said.
Also, drop on crude oil could be triggered by V. Putin words, as he said on St. Petersburg economic forum that "we’re perfectly happy with $60 a barrel.” It means that intermediate target on recovery of crude oil market is completed. This also is confirmed by OPEC+ intentions to ease extraction limits and bring more oil to markets. That in turn, could be treated as simultaneous attempt to hold shale oil extraction in US, as its extraction is more expensive.
Technical picture of Crude oil also suggests some pullback as our long-term AB=CD monthly target has been completed and price has stuck in wide K-resistance area. In fact, we've got huge '222" Sell on monthly chart. On weekly chart oil has formed bearish butterfly and reversal week, which suggests downside continuation at least within 1-2 weeks more. But real retracement could be deeper due factors that we've mentioned above.
Speaking on BoC policy - there is no consensus yet. As BoC already has increased rate three times this year, many investors suggest that Central Bank will take pause on nearest meeting, but, other economists think that BoC will try to take pace and keep its policy as closer to Fed as possible:
Uncertain trade policy, including renegotiation of the North American Free Trade Agreement, and indebted consumers will encourage the Bank of Canada to leave its policy interest rate on hold at 1.25 percent next week, a Reuters poll predicted.
But Action Economics and some other forecasters expect the Bank of Canada, which has raised interest rates three times since last summer, to hike at the subsequent policy decision in July. That would help narrow the gap between Canadian and U.S. rates and boost the Canadian dollar, Simpson said.
So, on coming week it seems that crude oil prices will be major driving factors for CAD. Technical picture that we see right now tells about changing sentiment and points that CAD come become weaker.
Technicals
Monthly
Let's take a look at CAD through the prism of crude oil technical picture. Last time we talked on CAD month ago and our attention was focused on downside continuation as we've got a lot of bearish factors - oil prices hit new records week by week, here we've got bearish grabber and "222" Sell" pattern.
Now situation is changing. Here is a big chances that grabber will be cancelled as price already stands above its top and we have just 4 sessions till the end of the May. "222" Sell mostly has been completed because it has hit minor target of 3/8 retracement down. Trend here has turned bullish.
It means that upside action here will continue, reaction on strong support area of OP target and K-support is not finished yet and price should climb higher.
Weekly
Weekly picture also looks bullish and it shows a sequence of targets here. First of all - we have multiple bullish grabbers, first one was formed even in April and all of them suggest action above K-resistance and Agreement area.
Since situation on monthly chart also has changed - it seems that recent drop was just a reaction on first touch of strong resistance and now market is re-establishing upside trend.
Right now we're interested only with 1.3285 target - 1.27 butterfly "Sell" extension, because others stand above weekly OB. They are 1.3490 and 1.3630 - final XOP target of our AB=CD pattern.
Fundamental background of seasonal oil trend and possible flat BoC decision on interest rates could support this action.
Daily
Trend here also stands bullish. Market has passed through important natural support/resistance border and now it has space till previous tops.
Previously we've talked about uncompleted XOP target and warned that this is bad sign and market could return back to it. It seems that now time has come. We have two different AB-CD's here. First is initial pattern (blue) and newer one (red). But as XOP as OP stands approximately in the same area - around 1.3160-1.3190 and above recent top, which agrees with weekly grabbers.
Still, even this targets are too extended by far. Take a look that daily OB level hardly will let CAD to climb so high and so fast. On coming week we probably will be focused on reaching of just COP target @ 1.3020 area:
Intraday
4H chart shows nice patterns that point on daily COP target as well. They area butterfly "sell" and inner AB-CD XOP target. Both targets agrees with daily OB area and we could suggest that 1.3050-1.3070 will be ceil for coming week, if, of course, nothing extra ordinary will happen:
Hourly chart shows another AB=CD pattern. As soon as market will hit OP some pullback could happen. If you're searching chances to go long - keep an eye on strong support area around WPP and watch for bullish continuation patterns, such as "222" Buy:
Conclusion:
As fundamental background for CAD is changing, technical picture is changing as well. Thus, on coming week we're mostly focused on 1.3050-1.3070 target.
The technical portion of Sive's analysis owes a great deal to Joe DiNapoli's methods, and uses a number of Joe's proprietary indicators. Please note that Sive's analysis is his own view of the market and is not endorsed by Joe DiNapoli or any related companies.
