Brexit, Falling Oil Prices, Strong U.S. Economy Working Against Canadian Dollar

The Loonie was impacted heavily by the U.S. Non-Farm Payrolls report that was released on Friday. Does this positive data from the US impact your short term forecast for the currency pair USD/CAD?

Yes, I believe the U.S. Non-Farm Payrolls report was pretty robust. And it probably put the Fed on track for at least one rate hike. And that being said that will give the U.S. Dollar a boost.

And while the Bank of Canada is expected to hold rates steady, I think the money will continue to move in the USD which should underpin the Forex pair and trigger a breakout to the upside within the next month.

Brexit has been a huge global issue, and the US Dollar was one of the major currencies to feel the impact of the decision. Does the Brexit aftermath influence your 3 month forecast for the USD/CAD? 

The Brexit aftermath is going to continue to play out. And I think it is going to lead to lower demand for crude oil in Europe especially if the Euro Zone goes in a recession. And this should impact the price of crude oil which may drop into the low 40.00’s or upper 30.00’s per barrel. And that would have a negative impact on the Canadian economy.

So that’s what I am looking at as far as Brexit is concerned. Right now we are going through some kind of … I don’t even know what to call it … a honeymoon period. Traders are relaxed a little bit after the volatility last month, but once the plan starts to play out I think that will effect crude oil and that will have a direct impact on the Canadian Dollar.

The Bank of Canada will release its interest rate decision today (July 13), which is largely expected to remain at point 5%. What is your opinion on this, and does it alter your long term forecast?

I think that the Bank of Canada will leave rates unchanged. Nothing really changed from the May report which stopped the rally in the U.S./Canadian Dollar Forex pair. I think that we are going to look at much of the same and that the Bank of Canada is going to say that they expect improvements in the economy.

And because of that I am going to say the biggest influence on the Forex pair will be what the Fed does and what crude oil prices do. I don’t think that the BoC is going to have much of an influence on the direction of the market. If anything it’s going to keep it in a range. And basically, traders are going to react to what the Fed does and crude oil prices do.

Monthly USD/CAD Analysis

The main trend is up according to the monthly swing chart. However, momentum has been trying to shift to the upside since a closing price reversal bottom was formed at $1.2460 on May 3.  A trade through $1.3187 will confirm the potentially bullish chart pattern. A move through $1.2460 will signal a resumption of the downtrend.

The short-term range is 1.4689 to 1.2460. Its retracement zone is 1.3575 to 1.3838. A downtrending angle passes through this zone at 1.3729, making it a valid upside target also.

Based on the current price at 1.2963, the direction of the market the rest of the month is likely to be determined by trader reaction to the steep uptrending angle at 1.3100 and the downtrending angle at 1.2780.

A sustained move over 1.3100 will indicate the buying is getting stronger. This could generate a breakout to the upside and a confirmation of the closing price reversal bottom on a move through 1.3187.

A sustained move under 1.2780 will signal the presence of sellers. However, the break is likely to be labored because of potential support angles at 1.2620 and 1.2540 as well as the main bottom at 1.2460.

If there is a breakout over 1.3187 in July then look for the rally to extend into a potential resistance cluster at 1.3420, 1.3569 and 1.3575 next month.