CAD remains and should remain capped

Author: Trade Pro Skills

Tuesday, 02 March 2021 Number of words: 489 Study time: 3 Minutes Views: 133

Andria Pichidi Market Analyst - HotForex

Canda’s GDP grew 9.6% in Q4 (q/q, saar), better than expected after the 40.6% bounce in Q3 (was 40.5%) that followed a 38.5% plunge Q2. A modest inventory accumulation in Q4 after the huge drawdowns in Q3 added to GDP in Q4. Government consumption, M&E investment, and housing investment also made positive contributions. Household spending dipped in Q4. GDP contracted -5.4% in 2020, the largest decline since the series began in 1961. The slip in household spending bodes poorly for Q1, as restrictions likely bit early in the quarter, which have left the door open to a small -0.5% decline in Q1 GDP. However, we see activity rebounding 6.5% in Q2. Simultaneously, the recovery extends in the second half amid a simulative mix of rising vaccination rates, accommodative central bank policy, and ongoing support from government stimulus. The separate December GDP tally edged up 0.1% (m/m, sa) after the 0.8% jump (was 0.7%) in November.

Canadian Dollar as a commodity currency is getting stronger once again despite the Oil near-term weakness. USDCAD edged higher following the better than forecast Q4 Canadian GDP, though lighter than expected December GDP data. The pair dipped to 1.2630 from 1.2673 highs overnight and will now look past the backward-looking data, with the focus remaining on the risk backdrop, USD direction, and oil prices. Currently, risk-taking levels are fairly neutral, while the USD index remains above Monday’s three-plus week highs. USOIL is above earlier lows but well off Monday’s peak. As a result, the CAD should remain capped for now.

Commodity currencies such as CAD have posted exciting crosses since the past week, with CADCHF breaking 61.8% Fib level since 2019 decline while CADJPY remains for a 3rd week in a row above 200-week SMA and 2019 highs.

CADJPY is retreating this week; the drift losses on February’s month-end flows to 83.50 from 85.10. The RSI confirms the recent view and moves upwards above 60 areas with further are to be covert in the positive territory, while the MACD line is sloping higher, suggesting an increasingly positive momentum. The 20-, 50-day, and 200-day SMA is endorsing the broader bullish outlook in trend indicators.

In case that the price remains above the 82.80 support set at the 200 -week SMA, the price could move until the multi-year Resistance and the ro9und 85.00. Sharper increases could move the market towards the 88.00-88.20 resistance, registered in September-October 2018 highs and the midpoint of 100% and 161.8% Fib. Expansion levels.

Briefly, EURJPY has been in a strong upside tendency since October 2020, and if there is a plunge below the uptrend line, that could switch this view to neutral.

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