USD/CAD Daily Fundamental Forecast – May 25, 2017

The crashing of the USDCAD pair through the 1.35 region yesterday has finally confirmed the change of trend in this pair. Towards the end of last year, we had mentioned that the trend was up and that we were looking at 1.35 and 1.40 as the targets for the short and medium term respectively. After a wee bit of effort, we managed to reach 1.35 in this pair but the progress further was very slow and laboured and this had sowed seeds of doubt about the achievement of our medium term target of 1.40.

USDCAD Crashes Through Support

We had based our targets on the lowering oil prices and also the fact that Canada was having its own share of economic and housing problems and we were even thinking of a rate cut in Canada pretty soon. But they seem to have managed their economy well which is reflected in the improving economic data over the last few weeks. Also, the CAD has been supported by the rising oil prices over the last couple of weeks which has seen this pair move down from the 1.38 region towards the 1.35 region.

Yesterday, we saw the BOC hold the rates constant but paint a very optimistic picture of the Canadian economy and this helped the USDCAD pair to push below 1.35 and the pair sits below 1.34 as of this writing. We had mentioned yesterday that if the pair moves below 1.35, then we are likely to see the pair move further below quite quickly as it would mean a change of trend and this would then force the bulls to exit their longs in this pair very quickly. The move down has also been helped by the dollar being on the backfoot on the back of a neutral stance adopted by the Fed members in the FOMC minutes.

Looking ahead to the rest of the day, we have the OPEC meetings for the day, in which a decision on the production cut deal and the length and the breadth of it would be made and this is likely to affect the oil prices and hence the USDCAD pair. But with the pair having broken down through 1.35, this is now likely to act as resistance on any further upmove.