- USD / CAD bears jump in as the US dollar catches a safe haven offer.
- US jobs reported on Friday assumed global growth concerns.
- All eyes are on the BoC and Fed spokesmen this week.
At the beginning of the weekly analysis, US dollar: a bearish false start?, in fact, the US dollar has made up for any losses incurred after last week’s poor US payroll report for non-farms for non-farms.
It was found that while the job report was a grim finding, “while it was terrible, it was just one of many other very powerful reports.”
When America sneezes …
There is a saying, “When America sneezes, the rest of the world catches a cold”.
While the delta may have had a major impact on the US labor market, “the US is not the only economy at risk of delta expansion. It all comes down to relative performance, ”as stated in this previous analysis.
“The US dollar could hold up better than expected as a US recession would likely be part of a wider global downturn.”
Indeed, the US dollar appears to have rebounded as concerns about a slowdown in global growth have reinforced its appeal as a safe haven in holiday-thin trading ahead of key central bank meetings today and later this week.
The knee-jerk reaction to the job data was understandable as it dampened restrictive expectations at the Fed’s interest rate meeting this month.
However, markets must now weigh the effects on global growth as a whole, and if America slows down, it will have a negative impact on the pace of overall labor growth.
This would be a significant headwind for cyclical and commodity complex currencies such as the Euro, Aussie and CAD.
In the meantime, this week’s meeting of the Bank of Canada will be very important.
However, no changes are expected before the general election. However, monetary policy normalization is already well underway and markets are weighing how overvalued the greenback is for the loonie.
The BoC has loudly announced its intention to raise interest rates “in the second half of 2022” when inflation, according to the BoC’s forecasts, reaches a constant 2%. That is tremendous support for the domestic currency itself.
” The bank has to acknowledge that the post-GDP outlook weakened in Q2, but we don’t expect it to move away from its current schedule for closing the output gap in Q2.
” The CPI’s recent strength also helps maintain the status quo, even as the BoC reiterates that temporary factors are driving inflation. ”
USD and CAD positioning
As for the futures markets, the latest positioning data shows that speculators have moderately added to their long positions in the USD index and are now at their highest level since early March 2020.
However, the weekend report will reflect the market’s appetite for the greenback after the NFP disappointment in August so we could see a bearish adjustment there.
Fed spokesmen this week will be important in this regard as cautious tones are likely to weigh on the greenback.
In CAD positioning, net speculators’ CAD positions fell into negative territory for the first time since December 2020.
This move likely reflects the market’s reaction to the surprising decline in gross domestic product in the second quarter.
Going forward, investors will be concerned not only about the risks associated with the choice, but also about the spread of the highly contagious Delta variant of the coronavirus and oil prices.
USD / CAD technical analysis
Price is testing the 50-day EMA through the lows today after closing below the daily trendline support formed on July 1st:
If price encounters resistance at the old support and within the 50% mean reversion range, the downward movement below the countertrendline would be expected to continue.
The July 30th swing lows could come under pressure near 1.2420 in such a scenario.
On the flip side, a break in the bullish trend would leave the bulls in control at 1.27, which is seen as major psychological drag.