USDCAD failed to hold onto its October low (1.3496) as the Canadian Employment report showed the economy added 108.3K jobs last October, and the exchange rate may face further setbacks ahead of the next Bank of Canada (BoC) meeting on December 7 as the development puts pressure on Governor Tiff Macklem and Co. to continue the hiking cycle into 2023. USDCAD is trading back above its 50-Day SMA (1.3524) as it rebounds from a fresh monthly low (1.3387), but the exchange rate may struggle to hold above its moving average as the US Consumer Price Index (CPI) is expected to drop, indicating slowing inflation.
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USD/CAD Climbs Back Above 50-Day SMA Ahead of US CPI

 
At the same time, data out of the US could drag on USDCAD as both headline and core CPI are expected to decline in October, and signs of easing price growth could prompt the Federal Reserve to adjust its approach to combating inflation as the central bank tries to achieve a soft landing for the economy. As a result, USDCAD may no longer respond to the positive slope in the 50-Day SMA (1.3524) as it trades below the MA for the first time since last August, but a stronger-than-expected CPI report could trigger a rebound from the monthly low (1.3387) as it puts pressure on the Federal Open Market Committee (FOMC) to implement another 75bp rate hike at its last meeting for 2022. In turn, USDCAD could continue to retrace the decline from the monthly high (1.3808) as it trades back above the moving average, and further upside in the exchange rate could trigger a recent reversal in retail sentiment similar to the behavior seen earlier this year.



The IG Client Sentiment (IGCS) report shows that 44.61% of traders are currently net-long USDCAD, with the ratio of traders short to long standing at 1.24 to 1. The number of traders net-long is 14.22% lower than yesterday and 16.09% higher from last week, while the number of traders net-short is 5.54% higher than yesterday and 8.04% higher from last week. The increase in net long interest has helped reduce crowding behavior as 35.70% of traders were net long USDCAD last week, while the increase in net-short positioning occurred as the exchange rate rebounded from a fresh monthly low (1.3387). Thus, the US CPI update could undermine the recent rebound in USDCAD if the print data increases bets for a smaller Fed rate hike in December, but the exchange rate could follow the positive slope at the 50-Day SMA (1.3524) as it trades back above its moving average.

USD/CAD Daily Chart


 

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Canadian Dollar Talking Points

  • USD/CAD started a series of higher highs and higher lows after a failed attempt to close below the 1.3400 (23.6% expansion) level, with a close above 1.3540 (23.6% retracement) bringing the 1.3630 (38.2% retracement) to 1.3660 (78.6% expansion) area back on the radar.
  • In turn, USD/CAD could follow the positive slope at the 50-Day SMA (1.3524) as it trades back above the MA, with a break/close above the 1.3800 level (161.8% expansion) increasing the scope for a move at the yearly high (1.3978).
  • However, USD/CAD may no longer respond to the moving averages if it struggles to close above 1.3540 (23.6% retracement), with a move below the 1.3460 area (61.8% retracement) bringing the 1.3400 area (23.6% expansion) back into play.
USDCAD analysis will be updated daily along with other pairs and other news. Don't forget to use an ECN account so you can trade with low spreads. Also follow the GIC Prize Fair to win a total prize of 1M without a draw!