38% Fibonacci Retracement In View For USD/CAD

Posted Thursday, September 17, 2020 by
Shain Vernier • 2 min read

A weaker USD is typically a good sign for commodity prices. For the USD/CAD, this dynamic is doubly true and is encouraging news for CAD backers. However, the past day hasn’t brought much volatility to this pair. Even though WTI crude oil has cracked the $41.00 handle and the FED is betting big on dollar devaluation, the Loonie has been quiet. Going into Friday’s session, the USD/CAD has posted a meager 120 pip weekly range amid quiet trading conditions.

So, why the hesitation from forex traders? Given the current fundamentals, shouldn’t selling the USD/CAD be a no-brainer? Not quite. Here’s why:

  • COVID-19: At this point in the COVID-19 pandemic, it looks like the U.S. is leading Canada in recovery. Job losses north of the border are still extreme, as shown by today’s Canadian ADP Employment figures for August (-205.4K). This number missed the projected 901.8K badly, hurting sentiment toward the Loonie.  
  • Crude Oil Seasonality: Although WTI has rallied this week, fall/winter seasonality is right around the corner. If WTI becomes comfortable between $35.00 and $30.00 for the next six months, the Canadian energy industry will contract further.

Tomorrow, we’ll learn a bit more about Canada’s economic picture. Retail Sales (July) are due out during the pre-U.S. market hours. Not much is expected, only about 1.0% growth, down from 23.7% in June. If this number misses the mark, the USD/CAD may be poised to extend its two-week winning streak.

USD/CAD Challenges Fibonacci Resistance

In a Live Market Update from last week, I broke down the importance of the 38% Fibonacci retracement on the USD/CAD weekly chart. This level has already held up once ― will it stand tall again?

USD/CAD, Weekly Chart
USD/CAD, Weekly Chart

Here are the key areas to watch in this market for the near future:

  • Resistance(1): 38% Current Wave Retracement, 1.3269
  • Support(1): Swing Low, 1.2994

Overview: If we see the USD/CAD close the week above 1.3269, then this summer’s downtrend may be in jeopardy. Should this occur, a shorting opportunity from the Weekly SMA may be in the cards for coming sessions.

Also, if you’re trading the Loonie, be sure to keep an eye on WTI crude oil pricing. The October/November contracts are scheduled to roll over tomorrow. Extreme action in WTI is possible as institutional players bring in the monthly spread.

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