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USDCAD setting up for new leg lower? Trade and Oil key factors.

jeffriess
September 12, 2019
by Joseph Jeffriess, Market Analyst

Article Recap

Today’s High-impact USD economic news:

•10:30 pm U.S CPI Data
• CPI EXP 0.1% – Core CPI EXP 0.2%

Looking at the USDCAD this morning traders we can see price has started to develop some bearish signs. This coincides with positive developments in the current U.S. – China trade situation.

News hit that market that President Trump has taken a softer approach to China in several tweets. He tweeted that he will be delaying the increased tariffs on $250 billion in Chinese goods to Oct. 15 from Oct 1 as a “gesture of goodwill” to China. President Trump said the postponement came “at the request of the Vice Premier of China, Liu He, and due to the fact that the People’s Republic of China will be celebrating their 70th Anniversary.” – CNBC This holds off an increase from 25% to 30% on the intended products.

Why is this important to the current USDCAD picture? Mainly from a USD point of view, the relax in Trump’s tone could see further moves back to risk assets which could put pressure on the safe-havens like the USD and JPY. Gold is another that could decline due to calmer trade tensions.

The USDCAD rebounded overnight confirming support at 1.3147 adding just over 42 pips. This move was mainly lead by weaker oil prices that pushed up the CAD. EIA Oil inventories showed a sharp drop in U.S. crude stocks and OPEC member Iraq said the producer group would discuss deepening output cuts amid ongoing demand concerns. This led oil to close 200 cents lower. OPEC cut its 2020 demand forecast due to current global worries.

Pricewise the USDCAD is sitting in an interesting position, despite buyers setting up support with an overnight rally price remains in a fast downtrend. Last night’s buying could be a simple counter-rally after the uptrend break. Sellers set up a nice fade to end yesterday’s session. Today so far sellers have maintained the lower short-term momentum. This could produce a new LH that sets up a new continuation lower. Two points, 1 sellers can’t give up yesterday’s high. A break above that high suggests buyers are still in numbers. 2. 1.3147 support, if a move lower fails again at this level it could show sellers aren’t that interest in really pushing to extend their move.

With that in mind, USDCAD traders will need to keep an eye on trade developments between the U.S. and China, tonights U.S CPI data and oil. If last night’s move in oil was overdone we could see a recovery rally that adds pressure to the USDCAD. On the other hand it could also stabilise the USDCAD if we see further declines.

USDCAD Daily Chart
USDCAD.iDaily-2

All times are AEST.