The USDCAD pair is on downward price action as Loonie bulls seem to have found strong support to drag the pair back near weekly lows. US Dollar is trading lower in the broad market today despite cautious investor sentiment as tensions surrounding Sino-U.S. trade talks put a dent on Dollar’s strength. U.S. Justice Department decided to pursue legal proceedings against Chinese telecom giant Huawei just when high-level talks between China & U.S. is set to begin. This is viewed by many as U.S. attempt to force them to trade deal given lack of progress on key issues despite multiple attempts at negotiations. However, this move is viewed by many as a decision that could break apart the talks resulting in Dollar suffering in the broad market. The dollar is further weakened owing to investor’s belief that the Fed could pause rate hike plans for 2019 which will greatly affect short to medium term outlook.
Crude Oil Price & Subdued USD Helps Loonie Fall Below Mid 1.35 handle
The outcome of Sino-U.S. talks is expected to provide directional bias for medium term as China is the biggest importer of crude oil in the global market. Loonie bulls are further supported by Crude oil price action in the broad market which continues to trade in green following yesterday’s 2% increase in value. Canadian Loonie being a commodity-linked currency gains momentum when crude oil trades positive in the broad market. Investors are also on the lookout for US FOMC update as they await Fed’s stance on rate hike plans for 2019 and official confirmation on Fed’s decision regarding balance sheet shrinking activities. While the interest rate is expected to remain unchanged, dovish comments from Fed Chair Jerome Powell result in Loonie gaining upper hand. As of writing this article, USDCAD pair is trading at 1.3227 down by 0.21% on the day.
Aside from FOMC Update and Sino-U.S. trade talk investors are also on the lookout for other first tier data releases scheduled today. US market will see release of ADP NFP data, Q4 Preliminary GDP data and pending home sales data which are expected to keep price action highly volatile across the day. On the other hand, Canadian Calendar doesn’t have any major macro data releases for the day. Moving forward the path with least resistance ahead is on the downside as the pair has managed to move below mid 1.32 handle. Dovish comments from Fed Chair Powell will result in pair breaching 1.3200 handle and falling below mid 1.31 handle. On the flipside, the pair needs to breach resistance at 1.3295 handle for US dollar to regain momentum and break above psychological resistance at 1.3370 handle for a sustained bullish rally.
This article was originally posted on FX Empire
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