Welcome to another blog by Aspirefx. USDCAD went on to print new lows this past week, closing below 1.34000 a few times which from a technical aspect suggested further downside movement however from a fundamental perspective the fears of the impact the second wave of corona virus are rising as well as the swift implementation of monetary policy by the US government saw USDCAD possibly printing the bottom of the current downtrend. We’ll take a look at the lower time frames to see precisely the influence these aspects had on this pair this week.
On the daily time frame, placing the fib on the latest downside push, the 61.8 fib lines up nicely with the consolidation around 1.37700. If we break through 1.37700, 1.39000 would be the next level to look at for resistance as it lines up with the 78.6 fib perfectly as well as the previous support we had at the highs shown by the highlighted region. As mentioned in previous articles, the correlation between USOIL and this pair is a major factor to consider. With USOIL taking a knock towards the end of last week as fears of the second wave of corona virus heightens, which has seen the demand for oil drop even though supply cuts have continuously been made by OPEC and OPEC+ members.
Looking at the USOIL chart on the daily time frame, we failed to make a new high and rejected the $40 mark, the affect of the corona virus is clear as we can see since then price melted and went on to retest the monthly low around $35 leaving a wick in the highlighted region shown above. Depending on how well OPEC and non-OPEC members are able to comply to the predetermined cuts set out until the end of July, we will either see USOIL bounce or break through the highlighted zone. New reported cases by day in the United States rose from 18 199 on Monday to 24 570 on Friday. By the end of the week, that’s a 35% increase in the total new daily cases. With the second wave of corona virus looming world wide, investors are weary of pumping money into the oil market which obviously has a negative impact on the Canadian dollar as they are one of the biggest reserves of oil in the world. Slowed down economic activity is another factor which has seen oil suffer in recent weeks. This week Thursdays OPEC meeting will be a good indicator of where the oil market will be heading next and will be crucial to pay attention to in order to gain insight into where USDCAD may move to in the coming weeks.
Looking at USDCAD on the 4H time frame, last week we managed to close the gap that was made on March 8 of this year. We printed a double bottom just below the monthly key level of 1.34000 shown by the highlighted box but because we printed a higher low, from a technical perspective further downside movement was negated as you can see with the huge wick that was left to the downside and then the massive bullish pressure seen thereafter. From a fundamental perspective, this can be attributed to the positive news which came out for the dollar last week, namely the interest rates remaining the same, Federal Budget Balance of May coming out better than expected and the Initial Jobless Claims coming out slightly lower than predicted. Adding to the strength of the dollar is the ongoing Quantitative Easing which is being implemented by the US, amounting to $6 trillion tapering over the course of 2020.
On the 1H time frame, once we snapped and retested the trend line, it was confirmed that the bulls are back in control of the market. We went on to create a higher high at 1.36600, pulled back to the 61.8 on the Fibonacci tool creating another higher lower. We currently printed a new high on this time frame, we may see a pull back from this level and then can expect further upside movement heading into this week. Keep an eye out for the US Retail Sales, Industrial Production data, Crude Oil stock report as well as the Fed meeting all taking place this week.
With USDCAD heavily dependent on what happens in the oil market, it is important to follow both pairs in conjunction with each other when looking for trading setups. As always trade safe and subscribe to receive our blog posts instantly.