Published on Jul 20, 2023

USD/CAD Trading Update: Four Days of Losses in Mid-1.3100s- 20-07-2023

USD/CAD Analysis

Key Points: -

The USD/CAD pair is fluctuating within a narrow trading range around the 1.3170–1.3160 region.
Despite disappointing US housing data, the US Dollar manages to strengthen.
The EIA Crude Oil Stock Changes report indicates a decrease in demand for crude oil.

· Investors are closely watching for second-tier employment and housing data from both the US and Canada, as the pair approaches the yearly low and traders seek clear directions in the market.

Today's Scenario: -

USD/CAD bears are pleased with the US Dollar's pullback from the weekly high amid sluggish oil prices in early Thursday's European session. As a result, the Loonie pair has been declining for the fourth consecutive day, currently trading around 1.3145, after hitting a weekly low of 1.3133. This consolidation comes after an impressive rebound on Friday from the lowest levels seen since September 2022.

The US Dollar Index (DXY) has dropped 0.25% intraday, testing the 100.00 round figure, and has halted its two-day recovery from the lowest level recorded since April 2022. The greenback's decline can be attributed to disappointing US housing data and mixed concerns about the Federal Reserve (Fed), despite optimism in the US banks.

In June, US Building Permits contracted by 3.7%, contrasting with the previous increase of 5.6% (revised), while Housing Starts also slumped 8.0% during the same period, revised from a prior increase of 15.7%. Despite the slower growth in US Retail Sales for June, the promising details have supported the Fed's decision to maintain higher rates for an extended period and announce a 0.25% rate hike in July. This triggered a corrective bounce for the US Dollar from its 15-month low on Tuesday and aided in its recovery on Wednesday before the latest retreat.

On the other hand, WTI crude oil remains indecisive near $75.40, struggling for clear direction after reversing from a one-week high the previous day. The recent inaction in oil prices can also be attributed to conflicting factors, such as the less-than-expected inventory draw and the impact of the softer US Dollar.

Moreover, fresh fears of escalating US-China tensions, sparked by comments from a China diplomat and moves by the US House of Representatives concerning outbound investments and AI chips, have influenced the USD/CAD bears recently.

It is important to note that the mixed concerns about the Fed's actions in 2023, despite the confirmed July rate hike, contrast with the Bank of Canada's (BoC) hawkish stance, giving hope to USD/CAD bears.

Looking ahead, second-tier employment and housing data from both the US and Canada may impact intraday trading of the USD/CAD pair, along with Friday's Canadian Retail Sales data and the upcoming key Federal Reserve monetary policy meeting next week. Headlines concerning the Fed and China will also guide short-term movements of the Loonie pair and should be closely monitored.

Diagram of USD/CAD: -

Economic Events: -

Buy Scenario: -

if the trend were to reverse, the 1st resistance at 1.3232, acting as a multi-swing high resistance and the 50% Fibonacci retracement level, could challenge any upward movement in the price. A more substantial upward push could encounter the 2nd resistance level at 1.3278, which coincides with a pullback resistance and the 61.8% Fibonacci retracement, potentially hindering further price ascension. Till we do not advise to buy USD/CAD.

Sell Scenario: -

The USD/CAD pair is currently experiencing a strong bearish trend, indicating a high level of confidence in the continuation of the downward momentum towards the 1st support level.

The 1st support level is situated at 1.3099, serving as a swing low support that may potentially halt the bearish movement. In the event of further decline, the 2nd support level at 1.3057 becomes significant, as it aligns with a Fibonacci confluence at the 61.8% projection and 127.2% extension levels, making it a robust barrier against additional price drop. Till we do not advise to sell USD/CAD.