Canadian Dollar, USD / CAD, CAD / JPY, Fiscal Stimulus, Canadian GDP – Talking Points:
- Stock markets rose during APAC trading as investors applauded promising news on the coronavirus vaccine and strong economic data.
- The introduction of additional fiscal stimulus and a record expansion of economic activity could Canadian dollar higher.
- USD / CAD eyeing annual lows after breaking key support.
- CAD / JPY rates continue to trace an ascending triangle pattern.
Stock markets kicked off a new month of trading up front, as investors cheered Moderna seeks regulatory approval for its Covid-19 vaccine in Europe and the United States. Australia ASX 200 the index rose 1.08% and the Hong Kong Hang Seng index rose 1.12%.
China’s CSI 300 jumped 1.72% on a historic surge in local manufacturing activity, as Caixin Manufacturing’s PMI hit its highest level in a decade.
Looking ahead, November US manufacturing PMI and Canada’s third quarter GDP release top the economic rankings alongside inflation numbers euro-zoned.
Record GDP expansion to fuel the CAD
The Canadian dollar significantly outperformed its safe haven counterparts in November, rising more than 2.5% against the Japanese yen and the US dollar.
These gains are expected to continue in the near term, with the currency aiming for a rise on the back of a historic expansion in economic activity and the provision of additional fiscal stimulus. Canada’s GDP is estimated to have grown 47.6% – on an annualized basis – in the third quarter, as businesses reopened and consumers spent their government grants.
Retail sales rebounded vigorously from April’s nadir, climbing back to pre-crisis levels just two months after the country recorded its biggest drop in consumer spending. The local housing market has also recovered sharply, with buyers taking advantage of historically low interest rates, pushing prices up 16% from the same period last year.
Retail sales in Canada
However, with several Canadian provinces tightening restrictions on coronaviruses and Prime Minister Justin Trudeau warning that most citizens will not be vaccinated until “next September,” a more marked slowdown in economic growth seems relatively likely.
That being said, the unveiling of over C $ 51.7 billion in additional tax assistance by Finance Minister Chrystia Freeland could ease the economic downturn. The measures include an improved wage subsidy program – which is expected to cover up to 75% of wage costs – and extension of commercial rent and foreclosure assistance.
Freeland said that “our government will make carefully judged, targeted and meaningful investments to create jobs and stimulate growth. [and] provide the financial support the Canadian economy needs to function at its full capacity and to prevent Covid-19 from damaging our economic potential in the long term ”.
Therefore, investors can dismiss the worrying rise in local Covid-19 business and put a premium on the risk-sensitive Canadian dollar, with the government keeping its approach to fiscal policy, whatever it is.
Source – WOWA
USD / CAD Daily Chart – Lower Channel Descending Guide Price
USD/ CAD’s technical outlook remains skewed lower, as prices see a push to new annual lows after breaking through key psychological support at 1.3000.
With the RSI falling back below 40 and the MACD tracking firmly below its neutral midpoint, the path of least resistance appears lower.
A daily close below the December 2019 low (1.2952) is likely needed to break through to the November low (1.2923).
A violation that would likely signal a resumption of the primary uptrend and highlight the October 2018 low (1.2783).
Alternatively, USD / CAD could rebound towards 50% Fibonacci (1.3040) if range support at 1.2930 – 1.2950 holds.
USD / CAD daily chart created using Tradingview
IG USD / CAD Client Sentiment Report
IG customer sentiment data shows 76.17% of traders are net long with a long to short ratio of 3.20 to 1. The number of net-long traders is 0.25% higher than yesterday and 22.74% higher than last week, while the number of net -short traders is 6.93% lower than yesterday and 3.77% lower than last week.
We generally take a vexing view of crowd sentiment, and the fact that traders are long on the net suggests USD /GOUJAT prices may continue to fall.
Traders are longer than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger bearish USD / CAD contrarian trading bias.
CAD / JPY Daily Chart – In-Game Ascending Triangle
CAD / JPY rates look set to rise, as prices continue to carve out an ascending triangle pattern.
With the RSI above 50 and prices traveling firmly above the four moving averages, further gains are coming.
Gaining a firm foothold above the daily October 9 close (80.50) is likely needed to chart a course for prices to probe the August high resistance (81.58).
A break above that would likely validate the bullish pattern of the ascending triangle and bring the 61.8% Fibonacci (82.61) back into the reticle.
Conversely, a return below the July high (80.14) could neutralize short-term buying pressure and generate a correction towards the daily close on November 2 (79.18).
CAD / JPY daily chart created using Tradingview
– Written by Daniel Moss, Analyst for DailyFX
Follow me on twitter @DanielGMoss
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