Why Canadian Dollar: USD/CAD (CAD=X) may struggle this year

Why Canadian Dollar: USD/CAD (CAD=X) may struggle this year

Why Canadian Dollar: USD/CAD (CAD=X) may struggle this year

The Canadian dollar may struggle in 2020 to top its stellar performance from this year. That’s the message from the global head of foreign-exchange strategy at Credit Suisse who expects the tailwinds seen in 2019 to fade. While risk-sensitive currencies like the loonie should perform well if the global economy continues to firm, Shahab Jalinoos believes Bank of Canada policy makers will be quick to try to curtail a significant rise.

“The key risk is the BOC itself, which tends to talk more dovishly whenever CAD shows material strength,” Jalinoos said, using the market abbreviation for the Canadian currency. Additionally, the Bank of Canada’s search for a new chief may “create some uncertainty that hinders CAD appreciation,” he said. The central bank has formally started its hunt for a successor to Stephen Poloz, who is stepping down as governor in June.

The Canadian dollar was the best-performing major currency in 2019, notching a 5% gain against the greenback in a year that saw foreign-exchange volatility sink to record lows. Resurgent commodity prices helped buoy the currency, as did a central bank that kept borrowing costs steady, making it an outlier in the global easing trend.

For those reasons, Jalinoos sees the dollar-loonie rate consolidating around C$1.28. The U.S. dollar on Tuesday fell for a fifth straight day against its Canadian counterpart dropping below C$1.30 for the first time in over a year.

One technical indicator paints a brighter picture for loonie bulls. The pair posted a monthly close well below its long-run trend support at C$1.3155, signaling that there’s more U.S. dollar weakness in the offing. While chart patterns suggest firm support for the greenback in the low-to-mid-C$1.30 range, there may be little support until it declines to C$1.28.

Still, Bannockburn Global Forex sees the Canadian dollar’s run largely stalling out, with a forecast of C$1.295 for the end of 2020. While the nation’s economic growth was resilient to a global slowdown in 2019, the data is poised to soften, according to the firm’s chief market strategist Marc Chandler. That should prompt the central bank to cut interest rates twice, a view reinforced by policy makers’ recent “shift from neutrality,” he said.

Domestic data since the Bank of Canada’s last rate decision of the year has been weak, with gross domestic product shrinking for the first time in eight months and the nation suffering its biggest jobs loss since 2009.

“The Canadian economy is weakening and the central bank will have to cut rates,” Chandler wrote in an email. “Typically, in a weakening USD environment, CAD lags on crosses.”

Technical Indicators

Overall, the bias in prices is: Downwards.

By the way, prices are vulnerable to a correction towards 1.32.

The projected upper bound is: 1.31.

The projected lower bound is: 1.29.

The projected closing price is: 1.30.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 22 white candles and 27 black candles for a net of 5 black candles.

A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 16.8436. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a buy 12 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 26.40. This is where it usually bottoms. The RSI usually forms tops and bottoms before the underlying security. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 128 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -185.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a buy 8 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 20 period(s) ago.

Rex Takasugi – TD Profile

FOREX CAD= closed down -0.000 at 1.298. Volume was 97% below average (consolidating) and Bollinger Bands were 23% wider than normal.

Open     High      Low     Close     Volume___
1.298 1.300 1.298 1.298 1,691
Technical Outlook 
Short Term: Oversold
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 1.31 1.32 1.33
Volatility: 4 5 6
Volume: 35,721 54,600 71,413

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

FOREX CAD= is currently 2.1% below its 200-period moving average and is in an downward trend. Volatility is low as compared to the average volatility over the last 10 periods. Our volume indicators reflect moderate flows of volume out of CAD= (mildly bearish). Our trend forecasting oscillators are currently bearish on CAD= and have had this outlook for the last 13 periods. Our momentum oscillator is currently indicating that CAD= is currently in an oversold condition.

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