The Trumpflation started to stall in the U.S. yesterday and uncertainty about U.S. policies going ahead have seen U.S. markets heading south, which also pulled down European markets and Asia. Asia was hit hard amid safe haven flows back into the yen. On the other hand, the U.S. and Canadian economic cycles are usually closely aligned, but that is not the case this week. Canada lags the U.S. and hence the BoC has frequently reiterated that monetary policy can diverge with the Fed.
Yesterday, USDCAD fell to four-session lows of 1.3289 from 1.3320 after the better Canadian retail sales outcome. However today despite broader weakness in the U.S. dollar, USDCAD lifted to a fresh one-week high of 1.3399, with the loonie coming under haft pressure via CADJPY and with oil prices taking a new turn lower (WTI down 0.9% presently). Oil prices affected CAD, with front-month WTI crude down 1.5% at $47.52, which is 1 cent above the intraday low. Weekly data from API showed U.S. inventories to have risen by 2.4 mln barrels last week, above the Reuters survey consensus for a 2.8 mln barrel increase. This comes amid a risk off theme in global markets as the Trump trade unwinds some, which has been impacted sentiment in crude markets over the last couple of sessions.
The hourly chart in the CADJPY prompted a long position due to the hold at 83.00 level earlier. Hence, given the break lower in oil prices and with the Fed only at the beginning of what is looking likely to be a protracted tightening cycle, an entry was taken at 83.189. Based on a 14 period ATR number, target was set at 83.36. Target 2 is at 83.47, which is the confluence of the 38.2 Fibonacci level. Additionally, in the 1-hour and 4 hour charts, the Williams’ Percentage range moves above oversold territory, which suggests a possible upward momentum.
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