The Canadian dollar has continued to come under heavy selling pressure once again today, driven by a resurgent US dollar, which has now broken through the key 81.30 level on the daily chart of the dollar index, to move firmly higher from this platform of support which is now in place. Since the reversal from the deep resistance at 0.9400, the decline for the CAD has been steady, but is now increasing in momentum, with yesterday’s wide spread down candle breaking through the potential support in the 0.9115 region, and now looking set to test the next level below in the 0.9060 region with further potential support now waiting in the 0.9020 and 0.9000 price regions. The volumes too are confirming the negative picture at present, with Monday’s attempt to rally, associated with low volume on the daily chart and duly engulfed with yesterday’s high volume at 60,493 contracts traded in the session.
Provided today’s price action holds below the 0.9110 level, then expect a further move lower, but with the US dollar ( the red line ) now moving deeper into overbought territory on the currency strength indicator, we are now reaching an extreme in this timeframe, and whilst the Canadian dollar (the purple line) has some way to go before reaching the oversold region, the current phase of price action may indeed be reaching a conclusion in the medium term, with the pair finding a bottom in the 0.9000 area or immediately below.
By Anna Coulling
Hi Anna,
Is the fall related to the fall in the oil as well? Or the USD strength is the most important for the movement?
Hi – many thanks for your question which is an interesting one, and there are several factors at work here, which are reflected in currencies and related markets. First of course is the relationship between commodities and the US dollar, with commodities generally rising on US dollar weakness and falling on US dollar strength. In the last few weeks, we have seen the US dollar regain some bullish momentum after a lack lustre first half of the year. However, it is important to note that this relationship is not guaranteed, and can and does fall in and out of correlation from time to time for various reasons, but at present, and certainly as far as oil is concerned, it is one of the drivers at present. On the USD index it has broken through some key technical levels in the last few days. This strength in the US dollar has also been reflected broadly in the other major currency pairs. The other relationship is that between oil and the Candian dollar, and to answer your question, yes this is certainly another factor, and indeed this is further confirmed by considering the CAD/JPY which tends to track the oil market relatively closely. The reason for this is simply that Japan is a major importer whilst Canada is a major producer and exporter and the price of oil tends to be reflected in this currency pair as a result. I hope this helps to answer your question and given the technical picture today it seems as though a further move lower seems likely in the short term – thanks and best wishes Anna