Forex Market: USD/CAD daily trading outlook

Friday’s trade saw USD/CAD within the range of 1.4339-1.4554. The pair closed at 1.4540, soaring 1.21% on a daily basis, while marking its 10th consecutive trading day of gains. The daily rate of increase has been the sharpest one since July 15th, when the pair surged 1.49%. The daily high has been the highest level since April 25th 2003, when a high of 1.4598 was registered. In weekly terms, USD/CAD added 2.61% to its value during the past week, while marking its third consecutive weekly gain and also the steepest one since the week ended on December 13th. Back then the pair appreciated 2.95%. USD/CAD has risen 4.92% so far during the current month, following two consecutive months of gains.

At 10:26 GMT today USD/CAD was losing 0.12% for the day to trade at 1.4524. The pair touched a daily low at 1.4493 at 8:30 GMT, after starting the business week with a gap up to a daily high of 1.4611, overshooting the range resistance level (R3). That high has been the highest level since April 24th 2003, when a high of 1.4672 was reached. Resistance may be encountered in the area around the current daily high (1.4611). A break and close above it may target the high from April 24th 2003. Support, on the other hand, may be received within the 1.4485-1.4500 area and then – at the hourly 55-period EMA (1.4452).

The Canadian dollar has recently been heavily influenced by a continuous decline in prices of crude oil. The commodity has fallen in 13 out of the past 21 trading days. Oil futures for March delivery were up 1.18% on the day to trade at $30.09 per barrel as of 10:34 GMT, after going up as high as $30.33 earlier. On January 15th the commodity touched a low of $29.13 per barrel, or a level unseen since late October 2003. Oil has slumped 18.75% so far during the current month.

No relevant macroeconomic reports and other events, which may influence USD/CAD trading, are scheduled on Monday.

Correlation with other Majors

Taking into account the week ended on January 14th 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 EUR/USD (0.9310, or very strong)
USD/CAD to USD/CHF (0.1339, or weak)
USD/CAD to USD/JPY (-0.6748, or strong)
USD/CAD to NZD/USD (-0.8965, or very strong)
USD/CAD to AUD/USD (-0.9243, or very strong)
USD/CAD to GBP/USD (-0.9715, or very strong)

1. During the examined period USD/CAD moved strongly in the opposite direction compared to USD/JPY.

2. USD/CAD moved almost equally in one and the same direction with EUR/USD during the past week, while moving almost equally in the opposite direction compared to NZD/USD, AUD/USD and GBP/USD. This relationship has been the most pronounced between USD/CAD and GBP/USD.

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

Bond Yield Spread

The yield on Canada’s 2-year government bonds went as high as 0.313% on January 15th, after which it closed at 0.288% to lose 2.8 basis points (0.028 percentage point) compared to January 14th. It has been the 14th drop in the past 22 trading days.

The yield on US 2-year government bonds climbed as high as 0.903% on January 15th, after which it closed at 0.850% to lose 4.9 basis points (0.049 percentage point) compared to January 14th. It has been the 15th drop in the past 23 trading days and also a fourth consecutive one.

The spread between 2-year US and 2-year Canadian bond yields, which reflects the flow of funds in a short term, shrank to 0.562% on January 15th from 0.583% on January 14th. The January 15th yield spread has been the lowest one since January 11th, when the difference was 0.546%.

Meanwhile, the yield on Canada’s 10-year government bonds soared as high as 1.232% on January 15th, after which it slid to 1.152% at the close to lose 8 basis points (0.08 percentage point) compared to January 14th. It has been the 15th drop in the past 22 trading days and also a fourth consecutive one.

The yield on US 10-year government bonds climbed as high as 2.101% on January 15th, after which it slipped to 2.037% at the close to lose 5.4 basis points (0.054 percentage point) compared to January 14th. It has been the 14th drop in the past 23 trading days.

The spread between 10-year US and 10-year Canadian bond yields widened to 0.885% on January 15th from 0.859% on January 14th. The January 15th yield difference has been the largest one since December 30th, when the spread was 0.893%.

Daily and Weekly Pivot Levels

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

R1 – 1.4560
R2 – 1.4579
R3 (range resistance) – 1.4599
R4 (range breakout) – 1.4658

S1 – 1.4520
S2 – 1.4501
S3 (range support) – 1.4481
S4 (range breakout) – 1.4422

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

Central Pivot Point – 1.4385
R1 – 1.4709
R2 – 1.4877
R3 – 1.5201

S1 – 1.4217
S2 – 1.3893
S3 – 1.3725