March 30, 2022 13:40:37
Firmer energy prices and low volatility in equity markets are helping to support the loonie. The former especially is a tailwind going forward, even with the potential more positive peace talks ongoing between Ukraine and Russia.
Oil markets are already tight and the risk of supply disruption as Europe and Russia face off over rouble payments is increasing. Higher commodity prices give a boost to Canadian terms of trade.
The tone of recent Bank of Canada officials has also been relatively hawkish. The Deputy Governor said only late last week that inflation was too high, and policymakers were prepared to act forcefully to return it to the 2% target. We note that seasonal trends for CAD are also positive going from April into the third quarter.
USD/CAD downtrend remains intact
The start of the week saw a brief squeeze higher. But this hit resistance in the form of long-term trendline resistance and the early March low at 1.2586. The pair’s failure to remain up above here was a clear sign that the bearish downtrend would continue.
An “inside day” printed yesterday. This occurs when the candlestick of one trading day’s high and low falls within the range of the previous days’ high and low. It is generally indicative of indecision but is seen as a continuation pattern.
The breakdown today confirms this with prices now pushing down through the year-to-date lows around 1.2453. Bearish momentum amid an alignment of trend signals remains strong. A daily close below the January low should see more downside. Sellers will have their eyes on the October lows from last year around 1.23.
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