In my last article, I was bullish on the US dollar ascending to the 1.3202 mark. This came true as the greenback scaled up against the Canadian dollar, which resulted in the US dollar attaining a high of 1.333 last week. Thus, in this article, I shall now ascertain the likelihood of the US dollar tumbling against the Canadian dollar. I say this as I expect the US dollar to fall till the 1.3016 mark. Hence, to ascertain the likelihood of this occurring, I shall look at the fundamental news affecting the pair whilst also analyzing the charts using technical analysis tools.
News for the pair:
- Canadian government bond prices:
- The Canadian government bond prices went lower across the board which resulted in the 10-year government bond falling by 29 cents thus yielding 2.167%. Moreover, the 10-year bond yield also extended to 2.173% which is the highest intraday level seen since June 20th.
- Canadian economic growth:
- Interest rate hike by the Bank of Canada:
- The chances of an interest rate hike occurring on July 11th have increased to 70% from a prior level of 50%. This is due to Bank of Canada's governor stating that he shall continue raising interest rates as Canada's inflation level has reached the 2% target set by the central bank.
- Trade war concerns:
- The trade war issue this week gave a boost to the performance of the loonie against the greenback. This is due to the Canadian government announcing that it shall be retaliating against US tariffs on steel and aluminium. The government announced that they shall be offering any affected firms and workers up to $603 million in assistance.
- Crude price rise:
- The price of crude has risen to a three and half year high due to the threat of fresh American sanctions against Iran. These sanctions shall remove a substantial volume of crude oil from the global markets and that too in a period when demand is escalating. This rise in price has been very fruitful for the Canadian dollar as it is one of nation's key exports.
Technical analysis of the pair:
The pair's daily chart indicates that in the coming week, the US dollar shall be having a bearish continuation from the price action seen on Thursday and Friday last week. On Thursday, the US dollar formed a bearish engulfing pattern which indicated to investors that the bears have wrestled control of the market from the US dollar bulls. Furthermore, due to the large bearish candle seen on Friday, we can expect a similar bearish candle on Monday which shall aid in the completion of a three black crows pattern.
On the price target front, I do not expect the US dollar to extend its fall beyond the 168.1% support level at 1.3016. This is due to this level being a change of polarity zone where former resistance came new support. Additionally, the 127.2% support level is at 1.3094.
On the indicator facet, the short-term RSI has been steeply descending and has just broken the 30 mark. This reinforces the notion that the bearish run shall continue to the 168.1% level mentioned above.
The pair's weekly chart indicates that the US dollar is all set for a bearish reversal due to the formation of a bearish engulfing candle and a tweezer top pattern. The bearish engulfing candle reflects to investors' that the bears have managed to wrestle control of the market from the bulls. Moreover, as the last two candles have failed to rise at a similar high point, this implies to investors that there is a slackening in demand levels. Furthermore, the tweezer top pattern has formed at the 100% resistance level at 1.3382.
The Big Picture:
In conclusion, I am leaning towards the bears being in the driver's seat for the coming days. This notion of mine is fueled by the fact that the technicals and fundamentals support a descent. However, whichever way you decide to trade, do ensure that you utilize trailing stops, as this shall aid in capital preservation which is of prime importance.
Good luck trading.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.