Forex Market: USD/CAD daily trading outlook

Friday’s trade saw USD/CAD within the range of 1.3851-1.4001. The pair closed at 1.3955, rising 0.13% on a daily basis, while marking its third consecutive trading day of gains. The daily high has been the highest level since May 18th 2004, when a high of 1.4004 was registered. in weekly terms, USD/CAD added 1.45% last week, while extending the gain from the week ended on December 13th. USD/CAD has appreciated 4.22% so far during the current month, following a 2.17% surge in November.

At 10:25 GMT today USD/CAD was losing 0.25% for the day to trade at 1.3922. The pair touched a daily low at 1.3914 at 9:49 GMT and a daily high at 1.3963 during early Asian trade. Support may be received at the psychological 1.3900 level, while resistance may be encountered at Fridays high (1.4001).

The Canadian dollar has recently been heavily influenced by a continuous decline in oil prices. Crude oil futures for January delivery were up 0.31% on the day to trade at $35.85 per barrel as of 10:21 GMT, after falling to as low as $35.58 earlier. Oil has declined in 11 out of the past 15 trading days. On Friday the commodity touched a daily low of $34.29 a barrel, which has been the lowest price level since February 18th 2009, when oil futures plunged as low as $34.13 per barrel. Crude oil has cut losses to 13.96% of its value so far in December from a 16.16% drop as of the preceding trading day (Friday).

No relevant macroeconomic reports and other events, which may have an impact on USD/CAD trading, are scheduled for release on Monday.

Correlation with other Majors

Taking into account the week ended on December 20th and the daily closing levels of the major currency pairs, we come to the following conclusions in regard to the strength of relationship:

USD/CAD to USD/CHF (0.7138, or strong)
USD/CAD to USD/JPY (0.1687, or weak)
USD/CAD to AUD/USD (-0.7048, or strong)
USD/CAD to NZD/USD (-0.7911, or strong)
USD/CAD to EUR/USD (-0.8704, or very strong)
USD/CAD to GBP/USD (-0.8905, or very strong)

1. During the examined period USD/CAD moved strongly in one and the same direction with USD/CHF, while moving strongly in the opposite direction compared to AUD/USD and NZD/USD.

2. USD/CAD moved almost equally in the opposite direction compared to EUR/USD and GBP/USD during the past week.

3. The correlation between USD/CAD and USD/JPY was insignificant during the period in question.

Bond Yield Spread

The yield on Canada’s 2-year government bonds went as high as 0.519% on December 18th, after which it closed at 0.501% to lose 2 basis points (0.02 percentage point) compared to December 17th. It has been the 11th drop in the past 20 trading days and also a second consecutive one.

The yield on US 2-year government bonds climbed as high as 0.997% on December 18th, after which it closed at 0.952% to lose 3.6 basis points (0.036 percentage point) compared to December 17th. It has been the 8th drop in the past 25 trading days and also a second consecutive one.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, narrowed to 0.451% on December 18th from 0.467% on December 17th. The December 18th yield spread has been the lowest one since December 14th, when the difference was 0.439%.

Meanwhile, the yield on Canada’s 10-year government bonds soared as high as 1.426% on December 18th, after which it slid to 1.401% at the close to lose 2.9 basis points (0.029 percentage point) compared to December 17th. It has been the 13th drop in the past 20 trading days and also a second consecutive one.

The yield on US 10-year government bonds climbed as high as 2.234% on December 18th, after which it slipped to 2.204% at the close to lose 2.1 basis points (0.021 percentage point) compared to December 17th. It has been the 16th drop in the past 25 trading days and also a second consecutive one.

The spread between 10-year US and 10-year Canadian bond yields widened to 0.803% on December 18th from 0.795% on December 17th. The December 18th yield difference has been the largest one since August 19th, when the spread was 0.809%.

Daily and Weekly Pivot Levels

By employing the traditional calculation method, the daily pivot levels for USD/CAD are presented as follows:

Central Pivot Point – 1.3936
R1 – 1.4020
R2 – 1.4086
R3 – 1.4170

S1 – 1.3870
S2 – 1.3786
S3 – 1.3720

By using the traditional method of calculation again, the weekly pivot levels for USD/CAD are presented as follows:

Central Pivot Point – 1.3875
R1 – 1.4081
R2 – 1.4207
R3 – 1.4413

S1 – 1.3749
S2 – 1.3543
S3 – 1.3417