Sive Morten
Special Consultant to the FPA
- Messages
- 18,531
Today, guys, we will take a look at CAD instead of gold market mostly because of technical reasons. Gold doesn't need significant update by far as long-term as short-term picture stands mostly the same, while on CAD we have interesting technical setup due Crude Oil market and Venezuela turmoil.
Fundamentals
Global fundamentals that make impact on CAD as well we've discussed yesterday, in report dedicated to EUR.
Here we add just few comments, special to CAD. Loonie dollar currently looks interesting because of strong relation to Crude oil and unrest in Venezuela could bring significant volatility to oil market. Besides, Bank of Canada still keeps hawkish sentiment and doesn't follow the Fed direction in question of rate policy. This combination creates the background that suggest appreciation of CAD value.
As Reuters reports - The Canadian dollar strengthened on Friday to its highest in nearly three months against the greenback as oil prices rose and as the gap narrowed between Canadian and U.S. bond yields despite U.S. data showing employers hired the most workers in 11 months.
The "big drivers" for the Canadian dollar have been narrower yield spreads and higher oil prices, said Amo Sahota, a director at Klarity FX in San Francisco. U.S. crude oil futures settled 2.7 percent higher on
Friday, helped by upbeat U.S. jobs data and signs that U.S. sanctions on Venezuelan exports have helped tighten supply.
The spread between Canada's 10-year yield and its U.S. equivalent narrowed on Friday by 2.6 basis points to a spread of 73 basis points in favor of the U.S. bond, its narrowest since Jan. 7.
The narrower spread came as hopes rose of progress on trade talks between the United States and China.
The U.S.-China trade talks this week had a "good vibe" with much work remaining, White House economic adviser Larry Kudlow said on Friday as China followed through on a pledge to increase soybean purchases with a 1 million tonne order.
Canada is running a current account deficit as well as being a major commodities producer, so its economy could benefit from a pickup in the global flow of trade.
"I think the deal is not closed but at least the tone has been positive and that has helped the commodity currencies for the most part," said Alfonso Esparza, a senior currency analyst at OANDA.
Still, the Bank of Canada has said interest rates will need to rise further over time in order to achieve its inflation target.
"I don't think the Bank of Canada needs to tweak its monetary policy or its tightening bias considerably as opposed to what we have seen with the Fed," Esparza said On Thursday, the Federal Reserve signaled a potential end to its interest rate hike cycle.
Stubbornly low wage growth in Canada should start picking up later this year as the economy overcomes a slowdown caused by weak oil prices and housing market softness, Carolyn Wilkins, a senior deputy governor at the Bank of Canada, said on Thursday.
Since our last discussion on CAD was before the moment when situation in Venezuela has become out of control, today we need to update this view.
Technicals
Monthly
Here we've got the confirmation of strong bearish engulfing pattern by the close of January candle. Pattern stands at major 5/8 resistance. January black candle has closed below the lows of December, which could be treated as Reversal month as well. Price starts dropping and now stands below YPP.
Strong support here stands at 1.2706 as YPS1 and 1.22-1.25 K-area.
For the monthly chart, this is tactical setup, because it doesn't suggest too extended targets, as they should stand somewhere inside recent upside swing. But... this is for monthly time frame. For daily one this could be long-term direction which makes trading process easier.
Weekly
Downside reversal point also was an XOP final upside target. Reversal has a shape of perfect Evening star pattern. As soon as downside action has started we've talked about possible B&B "Buy" and Bullish grabber that have been formed - but none of them were realized, market just has washed them out showing no respect at all. This just tells, how market strong is.
But, right now we're coming to strong weekly K-support area where first stop could be done.
Daily
Daily time frame also shows some reasons for upside pullback. Market has completed major COP target and finalized it by 1.618 Butterfly pattern. All this stuff stands near daily OS level.
As butterfly extension strictly has not been hit yet - market could fluctuate around for some time before the pullback will start. Upside retracement has chances to reach 1.3255-1.3295 K-resistance, because we at weekly support which is strong enough to trigger this bounce. Harmonic swing also points on retracement to K-area.
Our major direction is "down", so we're interested with this retracement only as a way to get better and safer entry opportunity, while scalp traders could think differently and use it as a background for intraday long trades.
Intraday
Here, on 4H chart we do not have clear bullish reversal patterns yet, but could suggest that the most probable one that could be formed is reverse H&S. Shape of flat consolidation and sharp downside breakout is typical for left arm and shoulder shape.
This chart also shows another K-resistance, where retracement up could stop. The advantage of this area compares to daily one stands due previous lows that stand inside of it. Besides, if we indeed will get H&S pattern, its AB-CD target also points on this area. But this is interesting only for those who intends to trade CAD on long side.
Conclusion:
Canadian dollar provides very interesting setup now on a background political events. Since setup is forming on monthly chart - it could provide weeks and weeks of clear direction for trading on daily time frame.
Next week we expect starting of upside pullback on daily chart which should provide as better and safer area for taking short position.
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.
Fundamentals
Global fundamentals that make impact on CAD as well we've discussed yesterday, in report dedicated to EUR.
Here we add just few comments, special to CAD. Loonie dollar currently looks interesting because of strong relation to Crude oil and unrest in Venezuela could bring significant volatility to oil market. Besides, Bank of Canada still keeps hawkish sentiment and doesn't follow the Fed direction in question of rate policy. This combination creates the background that suggest appreciation of CAD value.
As Reuters reports - The Canadian dollar strengthened on Friday to its highest in nearly three months against the greenback as oil prices rose and as the gap narrowed between Canadian and U.S. bond yields despite U.S. data showing employers hired the most workers in 11 months.
The "big drivers" for the Canadian dollar have been narrower yield spreads and higher oil prices, said Amo Sahota, a director at Klarity FX in San Francisco. U.S. crude oil futures settled 2.7 percent higher on
Friday, helped by upbeat U.S. jobs data and signs that U.S. sanctions on Venezuelan exports have helped tighten supply.
The spread between Canada's 10-year yield and its U.S. equivalent narrowed on Friday by 2.6 basis points to a spread of 73 basis points in favor of the U.S. bond, its narrowest since Jan. 7.
The narrower spread came as hopes rose of progress on trade talks between the United States and China.
The U.S.-China trade talks this week had a "good vibe" with much work remaining, White House economic adviser Larry Kudlow said on Friday as China followed through on a pledge to increase soybean purchases with a 1 million tonne order.
Canada is running a current account deficit as well as being a major commodities producer, so its economy could benefit from a pickup in the global flow of trade.
"I think the deal is not closed but at least the tone has been positive and that has helped the commodity currencies for the most part," said Alfonso Esparza, a senior currency analyst at OANDA.
Still, the Bank of Canada has said interest rates will need to rise further over time in order to achieve its inflation target.
"I don't think the Bank of Canada needs to tweak its monetary policy or its tightening bias considerably as opposed to what we have seen with the Fed," Esparza said On Thursday, the Federal Reserve signaled a potential end to its interest rate hike cycle.
Stubbornly low wage growth in Canada should start picking up later this year as the economy overcomes a slowdown caused by weak oil prices and housing market softness, Carolyn Wilkins, a senior deputy governor at the Bank of Canada, said on Thursday.
Since our last discussion on CAD was before the moment when situation in Venezuela has become out of control, today we need to update this view.
Technicals
Monthly
Here we've got the confirmation of strong bearish engulfing pattern by the close of January candle. Pattern stands at major 5/8 resistance. January black candle has closed below the lows of December, which could be treated as Reversal month as well. Price starts dropping and now stands below YPP.
Strong support here stands at 1.2706 as YPS1 and 1.22-1.25 K-area.
For the monthly chart, this is tactical setup, because it doesn't suggest too extended targets, as they should stand somewhere inside recent upside swing. But... this is for monthly time frame. For daily one this could be long-term direction which makes trading process easier.
Weekly
Downside reversal point also was an XOP final upside target. Reversal has a shape of perfect Evening star pattern. As soon as downside action has started we've talked about possible B&B "Buy" and Bullish grabber that have been formed - but none of them were realized, market just has washed them out showing no respect at all. This just tells, how market strong is.
But, right now we're coming to strong weekly K-support area where first stop could be done.
Daily
Daily time frame also shows some reasons for upside pullback. Market has completed major COP target and finalized it by 1.618 Butterfly pattern. All this stuff stands near daily OS level.
As butterfly extension strictly has not been hit yet - market could fluctuate around for some time before the pullback will start. Upside retracement has chances to reach 1.3255-1.3295 K-resistance, because we at weekly support which is strong enough to trigger this bounce. Harmonic swing also points on retracement to K-area.
Our major direction is "down", so we're interested with this retracement only as a way to get better and safer entry opportunity, while scalp traders could think differently and use it as a background for intraday long trades.
Intraday
Here, on 4H chart we do not have clear bullish reversal patterns yet, but could suggest that the most probable one that could be formed is reverse H&S. Shape of flat consolidation and sharp downside breakout is typical for left arm and shoulder shape.
This chart also shows another K-resistance, where retracement up could stop. The advantage of this area compares to daily one stands due previous lows that stand inside of it. Besides, if we indeed will get H&S pattern, its AB-CD target also points on this area. But this is interesting only for those who intends to trade CAD on long side.
Conclusion:
Canadian dollar provides very interesting setup now on a background political events. Since setup is forming on monthly chart - it could provide weeks and weeks of clear direction for trading on daily time frame.
Next week we expect starting of upside pullback on daily chart which should provide as better and safer area for taking short position.
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.