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Is This the End of the Retreat for USD/CAD at the 200 Daily SMA?

Posted Wednesday, June 1, 2022 by
Skerdian Meta • 2 min read

USD/CAD has been trading in a range since last summer between 1.30 at the top and 1.2050s at the bottom, roughly speaking. Although, this pair broke above the resistance in the first week of last month, as risk sentiment turned quite negative on Chinese contraction due to lockdowns.

This pair reached 1.3070s, but reversed back down as the USD pulled back after being bullish for two months. Although, it seems like the 200 daily SMA (purple) is holding and the price is forming a couple of doji candlesticks, which point to a bullish reversal.

Bank of Canada raised interest rates by 50 basis points again, taking them to 2.00%, but USD/CAD is reversing higher nonetheless, which is a bullish signal. Besides that, the retreat in the USD seems to have come to an end with EUR/USD unable to push above 1.08. Crude Oil is also finding it hard to make new gains above $120 so, from the looks of it, this pair might turn bullish soon.

USD/CAD Daily Chart – Is the Bearish Trend Over

Highlights of the June 1, 2022 Bank of Canada interest rate decision.

Bank of Canada overnight rate to 1.50% from 1.00%
Inflation likely move even higher in the near term before beginning to ease
The risk of elevated inflation becoming entrenched has risen
Ukraine war is dampening the outlook, particularly in Europe
Canadian economic activity is strong and the economy is clearly operating in excess demand
Companies are reporting widespread labour shortages
Housing market activity is moderating from exceptionally high levels
Growth in the second quarter is expected to be solid
Interest rates will need to rise further
Governing Council is prepared to act more forcefully if needed to meet its commitment to achieving the 2% inflation target

The comment about acting ‘more forcefully’ is a strong indication that they’re likely to hike by 50 bps again in July. That was about 80% priced in just before the BOC decision. USD/CAD has risen to 1.2634 but that comes with broad USD strength and some risk aversion hitting at the same time.