USD/CAD Recovers as Dollar Strengthens Despite Uncertain Outlook

Insights

• The dollar strengthened against major currencies, consolidating against the Loonie 
• The 5s-30s yield curve inverted, inciting fears of a potential recession
• Gold and silver prices fell as interest rate yields surge
• Oil prices slid as the Shanghai lockdown heightened concerns about oil demand

The dollar edged higher against the Loonie in today’s trading session. The 5s-30s yield curve inverted today for the first time since 2006, spurring fears about a potential recession. However, rate hikes can cause the yield curve to become inverted without causing a recession. The 10-year yield rallies to a two-year high, increasing by 11 basis points in today’s trading session. The dollar rose as gold fell over 1%. Oil prices sharply fell 8$ as Shanghai began its four-day lockdown, generating fears about demand as China is the world’s largest oil importer.

The advanced trade good balance narrowed to %106.6 billion in February from $107.6 billion in January. The consensus was a gap of $106.0 billion. Exports drove the improvement, increasing by 1.2%. Exports in consumer goods (food, beverages, feed) and industrial supplies saw significant gains. Imports edged higher by 0.3%, following a revised increase of 1.8% in January.  

Technical Analysis

The USD/CAD recovers from a nine-day slide against the Loonie, consolidating near 1.255. Downward pressure on the currency pair is expected. Resistance at the recent breakdown near 1.261 should cap gains. Support is seen near the horizontal trendline near the January lows of 1.245. There will likely be a break below this support level in the near term. Resistance is seen near the recent breakdown level near 1.261. Short-term momentum is negative as the fast stochastic had a crossover sell signal.

The medium-term momentum is negative as the MACD line generated a crossover sell signal. This scenario happens when the MACD line (the 12-day moving average minus the 26-day moving average) crosses the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram prints positively. The trajectory of the MACD histogram is downward sloping, which likely points to downward prices.