USD/CAD Technical Outlook
- USD/CAD pulled back sharply in-line with expectations following a faltering in momentum
- Stocks look to still be vulnerable and on that USD/CAD looks poised for more gains at some point
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This is a snippet from last week’s USD/CAD outlook, “Weakness could sink USD/CAD 2-300 pips quickly even if only a pullback given the size of the run with no retracement.” The thinking was that momentum was faltering while stocks traded around the June lows.
The pullback in the dollar and hard bounce from around prior bear market lows was in the cards given some of the extremes, but it doesn’t appear we are yet a major turning point. On that, USD/CAD should firm here shortly.
There aren’t any great levels in the immediate vicinity, perhaps week’s current low around 13500 will become something meaningful. If not, then a pair of swing highs from a couple of years ago surrounding 13400 could come into play.
On the top-side a run back to near 138500 will be needed to bring resistance, but that level isn’t expected to hold if indeed stocks are to continue further into bear market territory. The down-move since the summer high has yet to show real signs of capitulation, an event that could come soon.
USD/CAD is the FX variation of an inverse S&P 500 these days, as its 1-month correlation stands at a strongly negative 0.99. This means on a near daily basis USD/CAD is moving opposite the stock market.
All-in-all, still seeing how things play out here as stocks could rally a bit further before turning back down. And with no clear levels yet in USD/CAD it is tough from a technical standpoint to assess risk for longs on this decline. Soon, though, we should have some good clarity to work with.
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—Written by Paul Robinson, Market Analyst
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