Juggling USD/CAD
Trading USD/CAD at the moment involves juggling three main balls in the air. Canada's domestic outlook, the price of oil and the, as yet, unresolved Nafta deal.
So, the situation with each of them, as of this morning is as follows:
Canada's domestic outlook
It's solid, with softer tones into the rate meeting today. Last month, on July the 11th, the Bank of Canada (BOC) increased their interest rates from 1.25% to 1.5%. Since that rate rise Canada's core retail sales have increased 1.4% m/m vs 0.6% expected. Canada's July GDP m/m reading was a beat too at 0.5% vs expectations of 0.3%. Furthermore, July's trade balance narrowed while the employment change increased by 54K jobs vs expectations of an increase of 17K. However, most of these jobs were part time and not full time, so the headline figure was not quite as great as it first seemed. The feared housing bubble that the Bank of Canada had been concerned about has also now receded and, on Friday the 17th of August the Canada had a stellar CPI release with a reading of +3.0% y/y vs 2.5% y/y expected. This was the highest reading in a number of years and this strong domestic outlook means that there was a growing potential for further rate hikes from the BOC. However, that potential has largely receded on the back of the slightly below reading on the latest GDP figures out of Canada. Some of that was blamed on an outage on one of the oil sands. But, regardless of the reason, the chances of a hike today are now down to around 8%. (CAD bearish for now)
Oil
Canada is one of the largest oil producers in the world with substantial oil reserves contained within it's oil sands. According to the Oil and Gas Journal, Canada has around 173 billion barrels of proven oil reserves and at the start of 2015 these reserves were ranked third largest in the world. Canada is also the third largest exporter of oil with around 99% of it's exports going straight to the US. So, the price of oil has a big impact on CAD. When oil prices are rising , the Canadian dollar is rising. When oil prices are falling, the Canadian dollar is falling. The correlation between oil and the USD/CAD currency pair is over 95%. Oil markets are a tad soft at the moment with the daily chart putting in an outside day. There is also some chatter about the impact of a trade war on China's demand for oil. With new tariffs potentially released tomorrow by Trump, that sentiment could rise to the fore. There is near term pressure on oil (CAD bearish for now)
Nafta
It's like a soap opera. Will they? Won't they? Trump said....Trudeau said.....Ok, I mustn't complain, it's good for headline trading. At the moment Trudeau has come out laying his 'red lines' on the table. As to what Trump will do/tweet next, it is anyone's guess. However, he tends to square up in a brawl rather than approach it sideways, so I would expect some more complaining about how unfair Nafta is. There is talk of a deal to be done on Friday, so that kicks the can down the road. (Mixed headline risk for CAD).
In terms of trading, the near term case for CAD is bearish and with the BOC rate statement out later, and chances of a hike receding, I like a USD/CAD long into the meeting. The 50 EMA has been respected a number of times recently and stops can be placed underneath the 100MA on the 15 minute chart. (they are beneath the 50 EMA in the screenshot below, but the 100MA gives a bit more wiggle room). If still in by the rate statement out later the position can either be pulled prior to the meeting, stops moved to BE, or lighten the position. One word of caution, Poloz can surprise the markets, so don't risk it through the meeting.
