USD/CAD – Where’s the Bottom?

USD/CAD – Where’s the Bottom?

USD/CAD – Where’s the Bottom?

Over the past 6 weeks we’ve seen a staggering 1000 pip decline in USD/CAD with the pair falling from a high of 1.4690 to a low of 1.3320. The extent of the decline has many traders wondering when the pair will bottom. On a fundamental basis Canada’s economy is showing signs of stabilization and we believe Bank of Canada Governor Poloz will sound optimistic next week which is positive for CAD. The BoC has a monetary policy meeting and when they last met, not only did they leave interest rates unchanged but Poloz said he was not concerned about a global recession and believes that the weak Canadian dollar will aid growth. Poloz was also encouraged by the economy’s resilience and flexibility and instead of lamenting about the currency’s rapid decline, he said a further fast fall could boost inflation. This month he has even less to worry about with oil near $35 a barrel, GDP growth accelerating and consumer prices rising. While Canada is not out of the woods because consumer spending and labor market conditions remain weak, there’s been enough improvement for BoC Governor Poloz to maintain an optimistic outlook on the economy that should keep USD/CAD under pressure. However we all know that the outlook for USD/CAD depends largely on the outlook for oil which has broken above $35 a barrel. If oil continues to rise, so will the Canadian dollar

Technically, the latest decline in USD/CAD has taken the pair below the 23.6% Fibonacci retracement of the 2007 to 2015 rally. The next stop should be the 200-day SMA at 1.3285. Below that, there’s no major support until 1.30. If USD/CAD holds n 1.3285, a rally could take the pair all the way up to 1.36 and still keep it in an overall downtrend.

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