We are bearish of the CAD longer term on both the USD and JPY. We are see9ing a rally in the CAD and view it as a sell on weakness. Our view of the fundamentals, technicals, and sentiment is below:
Reflation Trade Ending CAD Going Down
The CAD and other commodity currencies soared higher on the reflation trade as traders bet on a strong global recovery from COVID and pushed commodities, risk assets, and currencies higher. The optimism about global growth going forward is fading and so too has the rally in risk currencies we view the recent rally in the CAD as a good risk to reward sell.
Crude Oil and Commodities Going Down
China the world’s largest consumer of commodities is seeing its economy slowing up which will send commodity prices lower. We have also covered the outlook for crude oil in previous posts and we expect crude which is Canada’s biggest commodity export to continue to fall going forward which will pressure the CAD lower.
Risk Aversion to Boost the Safe Haven JPY and USD
The USD looks set for higher prices longer term as the Fed reduces its huge monthly stimulus – this will not just firm the USD, it will also firm the JPY as risk aversion increases and the Yen is the number 1 safe-haven currency in big moves to risk-off followed by the USD which of course is the global reserve currency.
In terms of USD/CAD on the monthly chart, we are off the high of the month but expect a move up to 1.300 then 1.3400. On the daily chart, we are correcting the overbougtht condition and have support at 1,.2700 we would key off this level for longs with a stop back behind 1.2600.
In terms of CAD/JPY, we have resistance at 88.00 and our downside targets are 84.00 then 80.00. On the daily chart, we are rallying to the upside and would sell into the 87.00 level on weakness with a stop behind major resistance at 88.00. If we fail to test the 87.00 level we would sell back through the 86.00 level with a stop back behind the 87.00 level.
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