USDCAD, AUDCAD, GBPCAD, CADJPY Setups

USDCAD, AUDCAD, GBPCAD, CADJPY – Talking Points

• Canadian Dollar struggles against major peers following rate hike
• USDCAD points lower as US Dollar struggles for bids yet again
• Potential double-top in CADJPY following BoJ intervention

The Canadian Dollar remains firmly on the backfoot against most major peers following the surprise 50 basis point (bps) rate hike from the Bank of Canada. Markets were priced for a 75 basis point rate hike following hot inflation data, but traders were left disappointed. The Loonie was weaker against major peers apart from the US Dollar, which continues to struggle as we approach next week’s FOMC meeting.

As a result of the fundamental disappointment earlier this morning, CAD has been in retreat across the board. With many crosses ripping, we will take a look at some major Canadian Dollar crosses below.

USDCAD

USDCAD soared through 1.3600 following this morning’s rate hike, but those gains reversed soon thereafter as the US Dollar struggled yet again. When we take a look at the bigger picture, the Loonie has come to life of late, having pulled away from recent highs just below 1.4000. Despite heightened volatility across FX, the USDCAD cross looks eerily similar to the broader US Dollar Index, which appears to be rolling over. Despite this weakness, USDCAD has been unable to take out the October 4 swing lows at 1.3500, with a sizeable bounce occurring Wednesday morning ahead of the Bank of Canada rate decision.

Price has since retraced to the 23.6% fib of the advance off those Oct. 4 lows, but we continue to consolidate below 1.3600. With the BoC out of the way, traders will now look to US PCE data on Friday and next week’s FOMC meeting for context. The fight that bulls have put in to defend 1.3500 cannot go unnoticed, and price may revert to the middle of the monthly range should US rates once again get repriced higher. 1.3700 may trade shortly should the Greenback be given another jolt of life.

USDCAD 4 Hour Chart

Chart created with TradingView

AUDCAD

The Australian Dollar has notably worked to carve out a near-term bottom in many crosses, AUDCAD included. A brief period of consolidation above 0.8600 ultimately gave way to a break above the July swing low around 0.8750, which materialized during the Wednesday session. A combination of pronounced Loonie weakness and AUD strength pushed the pair to gains of over 1%, as price hovered around the 38.2% fib of the move off the March 2020 lows.

After such a violent move, price may look to consolidate here before continuing higher. While the Bank of Canada decided to slow its pace of rate hikes, the Reserve Bank of Australia may have to change course and revert to larger hikes after inflation data came in hotter-than-expected. Should a divergence in central bank policy reappear, AUDCAD may look to shatter descending trendline resistance that has penned in price for the last few months.

AUDCAD Daily Chart

Chart created with TradingView

GBPCAD

GBPCAD is another cross that has seen a jolt of energy of late, mainly due to Pound strength. Following the September “flash crash” in Sterling, the Pound has roared back to life as the UK government has walked back budget proposals that the market vehemently rejected. In the crash of Sterling, GBPCAD traded down to 1.4064 before betting bid back up. The 1.5000 psychological level ultimately proved to be no issue as price rallied higher, with price now testing a zone that acted as support from 2016 to June of this year.

If bulls can also slice through this zone, which notably coincides with the 50% retracement of the yearly range, the rally may continue to gain steam and barrel towards 1.6000. Despite the recent rally across UK assets as a result of the government pledging stability, numerous challenges remain. Notably, there is a rising wedge formation that continues to take shape following this recent rally. Should this bearish pattern play out, we may be looking at a retest of the 38.2% fib at 1.5330 or potentially the psychological 1.5000 level.

GBPCAD Daily Chart

Chart created with TradingView

CADJPY

CADJPY is an interesting pair, as are all Yen crosses at the moment. Whether you think it’s the right or wrong thing to do in the current environment, the Bank of Japan and Ministry of Finance are stepping in frequently to defend their currency. Even prior to recent interventions, the 110.00 level for CADJPY had proven to be sticky. The pair notably made a lower high in October, failing to surpass the September high of 110.594. While price has managed to hold fib support around 107.00, a potential double-top formation here at 110.00 may signal that a reversal could be on the cards. Should a move lower materialize, either through market forces or intervention, CADJPY may look to fall to the support zone from June-August at 102.50-103.20.

CADJPY Daily Chart

Chart created with TradingView

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— Written by Brendan Fagan

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