The USD/CAD pair had strongly recovered last week, with a 1.05% gain for the week and showed an outstanding upward trend on the weekly chart, widely anticipating a bullish position in the next succeeding session.
The currency pair significantly rallied from an engulfing trendline to start the week, which made a higher gap at the opening bell. Given an advancing trendline relative to early June lows with late June lows has offset the decline seen in August, and is currently anticipating a potential continuous rise of an uptrend from early May lows.
After reports that Iran will collaborate in an oil production freeze, the pair was pulled back on Tuesday and extended momentum to the downside amid Wednesday’s session.
Thus, the witnessed drop served to close the gap for the week shortly, while the following recoil made an attempt to rally. The pair struggled once more amid Friday’s session, with a combined early impact from Yellen’s speech and reports of Saudi state-owned Aramco attacks.
It was reported that Yemen fired missiles on Aramco’s oil facilities and claimed that the news was reported around the same time as Yellen’s speech, which caused volatile markets to oil prices.
Having said that, Aramco shortly released an announcement about their unaffected facilities, which sent oil prices to drop.
Gains Persist on Sluggish CAD GDP
Given a widely anticipated hopes for an informal meeting of OPEC members scheduled in September, it seemed that it wasn’t long before the markets turned upside down, intervening the recent rally in oil prices.
These uncertainties significantly weighed on the Canadian Dollar as the global oversupply glut hit confidence in the domestic economy, led by its outstanding reliance on the oil market.
However, the currency pair exchange rate made its way to gain over the course of the week, in spite of waning anticipations over the Federal Reserve rate hike before the end of the year.
Meanwhile, the USD/CAD opened aggressively during the pre-market session after reports on poor Canadian data, while the Loonie was outweighed today, which declined against all its rivals and is expected to severely drop more in the next succeeding days.
Reasons of Deeper Downward Trend
As shown in the chart below, USD/CAD pair opened at 1.31792 on August 8 and significantly dropped in three consecutive sessions, which ended at 1.30557 on August 10 at resistance 1.32509 and support 1.30220 after reports of three major events: Building permits, which lost about 1.9%, housing starts strengthened and is anticipated to soften, and the NHPI, which posted a record beat of 0.7%.
Consequently, the awful bearish trend didn’t stop there, instead the candle opened at 1.30553 on August 11, which tried to break out on the downside at support 1.30220 due to the recent eruption in the WTI crude oil, and as the leveraged institutional funds happened to be shifted to a net short CAD position from a net long position.
Moreover, the pair continued a downward move for three straight sessions and reached 1.29211 on August 15 at the close. The USD/CAD pair continued to deeper in three- straight sessions again and rested at 1.27795 on August 18, marking its lowest level for the week.
As the currency pair is currently recovering from last week’s drop, we concluded that we remain neutral on USD/CAD as the Federal Reserve is slightly less dovish compared to the earlier speech and a December rate hike is anticipated.
In addition, the Canadian Dollar could see a rally if crude oil prices will continue to soar.
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