Mars low on the radar in the middle of seeking assistance
Canadian dollar talking points
USD / CAD is trading at a new monthly low after failing to retrace the decline following the Meeting of the Bank of Canada (BoC), and the March low (1.2365) is on the radar ahead of the Federal Reserve’s interest rate decision as the exchange rate seeks support.
USD / CAD rate forecast: March low on the radar amid seeking assistance
USD / CAD carves series of lower highs and lows as BoC on track to scale back its quantitative easing (QE) program “eeffective the week of April 26And the bearish price streak could persist as the Federal Open Market Committee (FOMC) is expected to maintain the current course of monetary policy.
The FOMC appears to be in a hurry to change gears as the majority of Fed officials see the benchmark interest rate staying near zero through 2023, and the central bank may continue to endorse a wait-and-see approach after the update of the Summary of Economic Projections (SEP) at the March meeting Vice-president Richard clarida insists that “policy will not tighten just because the unemployment rate has fallen below a particular econometric estimate of its natural long-term level.”
In turn, more of the same from the FOMC may keep the USD / CAD under pressure as the central bank stays on track to “Increase our holdings of treasury securities by at least $ 80 billion per month and agency mortgage-backed securities by at least $ 40 billion per month“, And it remains to be seen whether the president Jerome Powell and Co. will adjust the forecast before the second half of the year, as the central bank is due to update the SEP at the June meeting.
Until there, rebound from March low (1.2365) could end up being a broader trend correction rather than a change in market behavior as USD / CAD is trading below the 50 day SMA (1.2568), but the retail sentiment tilt looks set to persist as traders have been long on the pair since May 2020.
the IG Client Sentiment Report shows 69.77% of traders are currently net-long USD / CAD, with the ratio of long / short traders standing from 2.31 to 1.
The number of net-long traders is 3.61% higher than yesterday and 5.64% more than last week, while the number of net-short traders is 38.15% higher than yesterday and 14.25% less than last week. The ratio narrowed to 2.54 last week as 71.72% of traders were net long USD / CAD, but overcrowding behavior reported from last year looks set to persist even as the BoC begins to reduce its QE program.
That being said, rebound from March low (1.2365) could end up being a general trend correction rather than a change in market behavior as retail sentiment slant persists, aAnd the exchange rate may continue to burn a series of higher highs and lower lows ahead of the Fed’s rate decision as a search for support.
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Daily USD / CAD rate chart
Source: Trading view
- The broader outlook for USD / CAD remains tilted lower as it marked a new annual low (1.2365) in March, 50-day (1.2568) and 200-day (1.2930) SMAs ) still following the negative slope reported from last year.
- the Relative Strength Index (RSI) highlights similar momentum as the indicator remains consistently below 60 with the oscillator indicating that bullish momentum may continue to subside as it fails to maintain the uptrend carried over from the previous month.
- The Fibonacci overlap around 1.2620 (50% retracement) at 1.2650 (78.6% expansion) appears to be acting as resistance in USD / CAD. exchange below the SMA 50 days (1.2568), but need a closure below the 1.2440 (23.6% expansion) Region to open the Fibonacci overlap around 1.2360 (100% expansion) to 1.2390 (38.2% expansion), which matches the March low (1.2365).
- NOText area of interest coming from around 1.2250 (50% retracement) to 1.2280 (50% expansion) followed by the 1.2170 region (61.8% expansion).
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— Written by David Song, Currency Strategist
Follow me on Twitter at @DavidJSong