The U.S. dollar’s appeal rose amid worsening risk appetite, as U.S. stocks dropped. The European Central Bank (ECB), like the Federal Reserve (Fed), raised interest rates promising further hikes as well.
In our previous forecasts we mentioned that keeping rates high for a long time might lead to a deep recession, which would negatively affect future estimates of oil demand. In fact, today we see the results, as oil declines relative to the highs of recent days.
In addition to the growth of the dollar index, the fall of oil back to its local lows is also a negative factor for the USD/CAD currency pair.
All this year there was a trend of rising oil prices and the simultaneous growth of the dollar index, which allowed the Canadian dollar to feel better than other world currencies. Currently, both of these factors are directed against the Canadian currency. There is a decrease in oil prices and growth of the dollar index, so the USD/CAD pair will update its annual highs in the near future.
According to forecasts of HSBC economists, the Australian and Canadian dollars will be quite vulnerable in the short term. With the ongoing Fed’s hawkish position and concerns about global growth, investors are likely to avoid risks in the upcoming weeks.
Technical analysis.
USD/CAD makes another attempt to overcome the slope of the uptrend. Combined with the fundamental factors (which we’ve mentioned earlier), there are reasons to believe that the current attempt will gain success. The cancellation of the growth scenario will be a departure to a slight downtrend. Let's put a stop at the level of 1.35, which previously acted as a support a few times.
Previously, USD/CAD formed a head and shoulders pattern, which was implemented by the decrease in November. Currently, the price has risen above the important shoulder level and now the quotes may get a boost upwards. At present, the only resistance is last week's high.
The purpose of this movement is to update local highs at the level of 1.40. It’s the closest target. Once this level is reached, it’ll be necessary to re-evaluate the possibility of the Canadian dollar’s continued weakening.
The USD/CAD currency pair is likely to decline:
Take profit – 1,40
Stop-loss – 1,35
This content is for informational purposes only and is not intended to be investing advice.
