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Canadian Greenback Forecast: Oil Costs Stay in Driver’s Seat – Setups in CAD/JPY, USD/CAD

canadian-greenback-forecast:-oil-costs-stay-in-driver’s-seat-–-setups-in-cad/jpy,-usd/cad

Canadian Greenback Outlook:

  • Continued positive aspects by crude oil costs are serving to propel the Canadian Greenback in the beginning of 2022.
  • CAD/JPY charges are actually again to ranges final seen in November 2021, whereas USD/CAD charges have reentered a multi-month symmetrical triangle that ruled worth motion for many of 2021.
  • In keeping with the IG Shopper Sentiment Index, USD/CAD charges now have a bullish bias within the near-term.

Yields, Oil Persevering with to Gasoline Loonie Power

A typical phrase heard on buying and selling desks this time of yr is “simply because the yr ends, doesn’t imply the development bends.” On this case, the robust, constructive relationship between the Canadian Greenback and crude oil costs that persevered on the finish of 2021 has continued into 2022. The 20-day correlation between crude oil costs and USD/CAD is -0.51, whereas the 20-day correlation between crude oil costs and CAD/JPY is +0.86. The continued push increased by oil costs solely serves to learn the Canadian Greenback, whereas rising long-end bond yields across the globe have duly sapped demand for protected haven currencies.

CAD/JPY Price Technical Evaluation: Each day Chart (January 2021 to January 2022) (Chart 1)

Canadian Dollar Forecast: Oil Prices Remain in Driver’s Seat - Setups in CAD/JPY, USD/CAD

CAD/JPY charges are persevering with to indicate indicators of gathering bullish momentum, with the pair extending additional above their every day 5-, 8-, 13-, and 21-EMA envelope, reaching the preliminary upside goal outlined final week when it was famous that “additional positive aspects are anticipated into the early-December excessive at 90.37 within the near-term.” The temporary drop on the primary buying and selling day of 2021 noticed charges rebound on the 50% Fibonacci retracement of the 2015 excessive/2020 low vary at 90.16 earlier than rebounding. It stays the case “{that a} near-term backside has lastly been established.” CAD/JPY charges are nonetheless heading in the right direction to return to their 2021 excessive at 93.02 within the coming weeks.

USD/CAD Price Technical Evaluation: Each day Chart (January 2021 to January 2022) (Chart 2)

Canadian Dollar Forecast: Oil Prices Remain in Driver’s Seat - Setups in CAD/JPY, USD/CAD

Within the prior replace it was famous that “USD/CAD charges have but to emerge on the opposite facet of their every day 21-EMA, which has as assist over the previous few buying and selling days. Doing so could be a powerful indication that the tide has lastly turned.” Certainly, USD/CAD charges have dropped under their every day 21-EMA, treating the one-month shifting common as resistance upon the primary retest. With the pair again within the multi-month symmetrical triangle that ruled worth motion for many of 2021, the near-term technical outlook has turned more and more bearish.

Momentum continues to speed up to the draw back, with USD/CAD charges under their every day 5-, 8-, 13-, and 21-EMA envelope, which is in bearish sequential order. Each day MACD continues to development decrease, nearing a cross under its sign line, whereas every day Sluggish Stochastics are hovering simply above overbought territory. A deeper setback under 1.2600 could quickly transpire.

IG Shopper Sentiment Index: USD/CAD Price Forecast (January 4, 2022) (Chart 3)

Canadian Dollar Forecast: Oil Prices Remain in Driver’s Seat - Setups in CAD/JPY, USD/CAD

USD/CAD: Retail dealer information exhibits 53.50% of merchants are net-long with the ratio of merchants lengthy to quick at 1.15 to 1. The variety of merchants net-long is 11.89% decrease than yesterday and 11.89% decrease from final week, whereas the variety of merchants net-short is 35.60% increased than yesterday and 1.13% decrease from final week.

We sometimes take a contrarian view to crowd sentiment, and the very fact merchants are net-long suggests USD/CAD costs could proceed to fall.

But merchants are much less net-long than yesterday and in contrast with final week. Current adjustments in sentiment warn that the present USD/CAD worth development could quickly reverse increased regardless of the very fact merchants stay net-long.

— Written by Christopher Vecchio, CFA, Senior Strategist

DailyFX supplies foreign exchange information and technical evaluation on the developments that affect the worldwide forex markets.

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