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USDCAD Back Above 1.31 Ahead of US CPI & Canadian Employment Data

Colin First

The USD/CAD pair broke the Asian consolidation range to the upside in early Europe, as the bulls look to retest the weekly tops of 1.3120 amid renewed US dollar strength across its main competitors. The greenback resumed its yesterday’s upbeat momentum, fueled by hawkish comments from the FOMC member Evans, as he noted that the US economic fundamentals remain stronger while adding that the Fed is approaching the neutral rate. The USD index rallied sharply to fresh 13-month highs at 96.09, up +0.57% on the day. Last week, one currency held up against the U.S. Dollar’s renewed strength: the Canadian Dollar. The Loonie put together its third consecutive week of gains, dipping below 1.30 for the first time in nearly two months. Fundamentally, the Canadian Dollar’s strength makes sense. Strong Canadian data helped raise expectations that the Bank of Canada would increase rates one more time this year – likely in October.

USD Moves Higher As CAD Losses Strength Over Dovish Crude Oil Price & Mixed Macro Data

Yet, while the fundamental outlook is good, there are some warning signs in futures markets that suggest the USD/CAD slide is nearing an end. The CFTC’s most recent Commitment of Traders (COT) Report shows that week-over-week, large speculators lightened up on their net short CAD positions by the largest amount all year. The position changed from net short -44,511 contracts to net short -31,569 contracts – a 12,942 contract decrease. The change in net positioning is often a contrarian indicator relative to price. The USD/CAD chart below highlights two recent examples of large changes in net positions. The first is when the net short positions decreased at the end of May. Shortly after, prices stabilized before a push higher. The second is when net short positions increased by 18,785 on June 26, which was followed shortly by USD/CAD prices topping. Meanwhile, weaker oil prices amid escalating US-China trade tensions weigh negatively on the resource-linked Loonie, in turn collaborating to the upside in the spot.

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On the release front yesterday, both US & Canadian markets saw mixed outcome. The data from Canada showed that housing starts on a yearly basis fell to 206.3K in July and missed the experts’ expectation of 219.5K. On the other hand, the new housing price index rose 0.1% in June after staying unchanged in May and met the market consensus. In the US markets, PPI on M/M basis dropped to 0.0% (Forecast 0.2%) from previous reading of 0.3% while Core PPI on M/M basis dropped to 0.1% (Forecast 0.2%) from previous reading of 0.3%, however US Initial Jobless Claims data saw positive outcome as the data was at 213K compared to previous reading of 219K. Moving forward, the pair will remain exposed to further upside risks, as the US CPI is expected to tick higher in the month of July while the Canadian employment change data is likely to disappoint.  Expected support and resistance for the pair are at 1.3000 / 1.2965 / 1.2920 and 1.3122 / 1.3150 / 1.3175 respectively.

This article was originally posted on FX Empire

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