USD/CAD grinding higher, eyes retest of October low at 1.3080
- USD/CAD continues to grind higher, but sellers are showing up ahead of the October low at 1.3080.
- Buoyant crude oil prices are keeping CAD losses versus USD contained in comparison to EUR and GBP.
USD/CAD has been gradually rising today, with the pair trading higher by around 30 pips or 0.2% and currently eyeing a re-test of resistance at 1.3080 in the form of the October low.
Buoyant crude oil prices tame CAD losses
USD/CAD is being driven higher today as a function of a broadly strengthening US dollar. The catalyst behind USD’s rise today is not 100% clear. Some analysts believe FX markets are still playing catch up to moves in bond markets following Monday’s Pfizer/BioNtech vaccine news that saw the US yield advantage over major developed market counterparts such as the EU and Japan shoot higher. Others argue that FX markets are refocusing their attention on short-term themes such as the rapidly worsening state of the Covid-19 pandemic, particularly in Europe, and the increasingly dovish sounding ECB (which benefits USD via hurting EUR). Either way, the Dollar Index (DXY) has rallied back above 93.00 in recent trade and remains higher by roughly 40 points, or 0.4%, on the day.
However, compared to the likes of EUR and GBP, losses on the day vs USD are tame. The loonie is being supported by higher crude oil prices, which remain underpinned by this week’s healthy dose of vaccine optimism, as well as weekly private US crude oil inventory data on Tuesday that suggested stronger-than-anticipated demand last week – crude oil stocks drew over 5M barrels against expectations for a much more modest draw of 900k barrels. Front-month WTI futures rallied above the $42.00 level for the first time since early September on Wednesday and currently trade less than $2 from post-lockdown highs of $43.75.
As long as crude oil prices continue to advance, USD/CAD gains are likely to remain modest if USD continues to strengthen and CAD might outperform other less commodity price-sensitive G10 currencies, such as EUR, GBP and JPY.
Sellers lining up ahead of the October low at 1.3080
Given strong crude oil prices, USD/CAD looks to be facing selling interest ahead of the resistance at the October low of 1.3080. Just above this level, there is further notable resistance at the psychological 1.3100 level, which also coincides with the 13 October and 3 November lows as well as the 6 November 2020 high.
Traders might be tempted to go short USD/CAD ahead of the 1.3080 mark with stops in place just above 1.3100, given the strong risk to reward provided if a trader is targeting a move in USD/CAD back towards this week’s lows of under 1.3000. That means a break above 1.3100 might seen some stops go.
Above 1.3100 there is not much by way of resistance ahead of the 21- day moving average (DMA), which currently resides at 1.3178, then the 50DMA, which sits just above 1.3200. To the downside, the main levels of interest are the psychological 1.3000 mark and this week’s multi-year low at 1.2928.
