The US dollar was weaker across the board at the time of writing, in what is a data-void session. The FX markets are taking their cues from other markets, and thanks to today’s
big rally for global stocks, sentiment towards risk assets were positive. The risk-on tone was therefore boosting the appetite for commodity dollars, as underlying commodity prices such as crude oil and copper rose. Buck-denominated gold, which consolidated its recent sharp gains over the past couple of weeks, was also higher amid weakness for the US dollar.
In the first half of the week, FX markets will likely maintain their recent trends as investors await key speeches from central bank heads at the Jackson Hole Symposium. In the second half, the trends may change or accelerate in the ongoing directions, depending on what types of messages come out from the convention.
The other key factors that might impact currencies is the latest developments in coronavirus and the treatments for the disease. The rising levels of infections in parts of Europe should be bad news, but so far this has been offset by the fact deaths have remained low as well as falling new cases in the US. What’s more, hopes over advancements in treatments and vaccine trials are also helping to keep sentiment positive.
USD/CAD bears eye breakdown sub 1.30
As mentioned, commodity dollars are looking strong. Among them, the Canadian dollar looks set to extend its advance against its southern neighbour, which could potentially see the USD/CAD drop below the 1.30 handle over the coming days:
Source: TradingView.com and ThinkMarkets
The USD/CAD pair has been in a strong downtrend since March, mirroring other risk-sensitive assets. The reason why I think it may drop below 1.30 is that trapped longs will have big stops resting below the old lows which come in around 1.2950. Also, the weekly chart in the inset shows the long-term bullish trend line is being eroded.
So, I think the USD/CAD will raid those stops before potentially bottoming out. However, the likely drop will probably not be in a straight line and there will be a couple of other support levels to watch for a potential bounce, including at 1.3080.
Even if the USD/CAD does bounce here and there, the current bearish trend will remain in place until such a time there is a clear reversal formation evidenced. This could for example be in the form of a false break reversal below the 1.2950 level, or a clean break above an old high such as at 1.3400. But rather than pre-empting such a move, I would rather see it first and then react.