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Dollar-Cad Crushed, Finds Fibonacci Support

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Canadian Dollar Price Forecast, CAD, USD/CAD Talking Points:

  • USD/CAD pushed down to a fresh three-week-low this morning.
  • Canadian employment numbers came out strong, beating expectations on both the headline print and the unemployment rate.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

It’s been a rough week for the US Dollar; and given the addition of some CAD-strength, helped along by higher Oil prices, USD/CAD has pushed down to a fresh three-week-low. This morning also brought out the release of Canadian employment numbers which, by and large, printed with some positivity. The Canadian economy added 378.2k jobs versus an expectation of 156.6k; and the unemployment rate of 9% beat the expectation for a 9.7% print and was well inside of last month’s 10.2% read.

That employment report helped to bring an impulse move into the pair as price action pushed down to a fresh three-week low until, eventually, USD/CAD found support around a familiar Fibonacci level, plotted around the 1.3148 area on the chart, which is the 88.6% retracement of the 2020 move in the pair.

USD/CAD Hourly Price Chart

USDCAD Hourly Price Chart

Chart prepared by James Stanley; USDCAD on Tradingview

This zone of support had previously helped to establish a short-term bullish trend in USD/CAD. As discussed previously, USD/CAD presented a pretty attractive venue for trading themes around the USD, particularly as the September reversal began to play through. After a near-six-month bout of weakness, both USD and USD/CAD spent much of September trending higher. In USD/CAD, this zone of support, plotted from around 1.3132-1.3150, helped to cauterize a higher-low in mid-September before the pair flung up to fresh higher-highs.

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But as USD-strength has begun to dissipate as the page has turned into Q4, so has that bullish theme in USD/CAD, bringing to question the viability of topside strategies in the near-term as buyers have remained on their back foot.

USD/CAD Daily Price Chart

USDCAD Daily Price Chart

Chart prepared by James Stanley; USDCAD on Tradingview

USD/CAD Strategy Moving Forward

At this point, the big question is whether buyers will step in to support a higher-low on the longer-term charts of both USD and USD/CAD. For swing traders – a hold of support in this zone could keep the door open for bullish scenarios, looking for a bounce after a very visible move-lower.

The key item of resistance in that case would be around the prior area of support, plotted around the 1.3250 level. This support held the lows on Tuesday of this week, leading into a quick bounce into the 3319-3357 zone; but now that support has been taken out, this can present an item of potential near-term resistance.



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily 2% -19% -4%
Weekly 18% -25% 2%

For shorter-term traders, a revisit to that resistance can open the door for bearish strategies. The big question, in that case, is one of downside potential, as the 1.3000 level has so far proven to be a tough area to break-through for USD/CAD bears over the past couple of years.

USD/CAD Four-Hour Price Chart

USDCAD Four Hour Price Chart

Chart prepared by James Stanley; USDCAD on Tradingview

— Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX





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Canadian Dollar Poised to Fall Ahead of Bank of Canada Rate Decision

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Canadian Dollar, CAD/JPY, USD/CAD, Bank of Canada, Covid-19 Second Wave – Talking Points:

  • A mixed day of trade during the APAC session saw the Australian and New Zealand Dollars outperform their major counterparts.
  • The Canadian Dollar could come under pressure as global market sentiment sours, ahead of the BoC interest rate decision.
  • USD/CAD eyeing a push back towards the monthly high.
  • CAD/JPY rates at risk of extended declines after snapping below key support.

Asia-Pacific Recap

It proved to be a relatively mixed Asia-Pacific trading session, with risk-associated assets pegging back lost ground late into the close after tumbling in early trade.

The Australian and New Zealand Dollars were the best performing currencies, as investors seemed to put a premium on assets from countries with a lower Covid-19 case count.

Australia’s ASX 200 index nudged 0.1% higher, while China’s CSI 300 index rose 1.1%.

The Euro lost ground against all of its major counterparts, as a record surge in coronavirus cases forced several European governments to tighten restrictive measures.

Gold and silver nudged marginally higher, while yields on US 10-year Treasuries remained unchanged at 0.76%.

Looking ahead, the Bank of Canada’s interest rate decision headlines the economic docket alongside EIA crude oil inventories for the week ending October 23.

Canadian Dollar Poised to Fall Ahead of Bank of Canada Rate Decision

Market reaction chart created using TradingView

Souring Sentiment May Hamper CAD Ahead of BoC

The cyclically-sensitive Canadian Dollar is at risk of further losses against the Japanese Yen and US Dollar, as souring market sentiment weighs on the performance of risk-associated assets.

A record surge of Covid-19 infections has forced governments across Europe to impose growth-hampering restrictions, while the number of active coronavirus cases in Canada has more than doubled in the last 30 days.

In fact, Canada’s chief public health officer Theresa Tam has warned that “as hospitalizations and deaths tend to lag behind increased disease activity by one to several weeks, the concern is that we have yet to see the extent of severe impacts associated with the ongoing increase in Covid-19 disease activity”.

Canadian Dollar Poised to Fall Ahead of Bank of Canada Rate Decision

Source – Apple Mobility Data

The tightening of restrictions in several Canadian provinces is likely to fuel regional investors’ concerns that the nation’s economic recovery is at risk of stagnating, or perhaps even reversing, as high-frequency mobility data shows all three mobility trends continuing to trend lower after peaking in early September.

However, deteriorating health outcomes may not be enough to force the Bank of Canada to adjust its monetary policy settings at its upcoming meeting, given Governor Tiff Macklem and his colleagues are expected to release upward revisions to their economic growth projections.

Moreover, Macklem has previously stated that “as much as bold policy response as needed, it will inevitably make the economy and financial system more vulnerable to economic shocks down the road”, adding that “the bottom line is that the private and public sectors together need to acutely aware of financial system risk and vulnerabilities as the economy recovers”.

Canadian Dollar Poised to Fall Ahead of Bank of Canada Rate Decision

USD/CAD comparison chart created using TradingView

This could indicate that Canadian policymakers are becoming more sensitive to the potential impact of alternative policy measures and may hesitate to do more unless it is absolutely necessary.

Nevertheless, the lack of action from the BoC may fail to underpin the Loonie in the near-term, as pre-election jitters and Covid-19 second wave concerns gnaw at market sentiment.

Therefore, the Canadian Dollar may come under pressure against its anti-risk counterparts, should the current risk-off dynamic continue to fuel haven inflows.

CAD/JPY Daily Chart – Trend Break Hints at Further Losses

Canadian Dollar Poised to Fall Ahead of Bank of Canada Rate Decision

CAD/JPY daily chart created using TradingView

From a technical perspective, the CAD/JPY exchange rate is at risk of extending its losses, after slicing through the uptrend extending from the May low (74.79).

With the RSI and MACD indicators tracking below their respective neutral midpoints, the path of least resistance seems skewed to the downside.

A daily close below the psychologically imposing 79.00 mark would probably ignite a push to test the 78.6% Fibonacci (78.46), with a break below the 50% Fibonacci (77.87) needed to bring the May low (74.79) into focus.

Conversely, if psychological support holds firm a retest of the 100-day moving average (79.56) is hardly out of the question.

USD/CAD Daily Chart – Short-Term Rebound at Hand?

Canadian Dollar Poised to Fall Ahead of Bank of Canada Rate Decision

USD/CAD daily chart created using TradingView

USD/CAD rates could be poised to rebound back towards the September 9 high (1.3260) and Descending Channel resistance, after surging away from the monthly low set on October 21 (1.3081).

A bullish crossover on the MACD indicator, in tandem with the RSI holding above 40, suggests that the path of least resistance could be higher.

A daily close above confluent resistance at the trend-defining 50-day moving average (1.3236) could signal a potential shift in sentiment and generate a push back towards the June low (1.3316), with a break and close above the 100-DMA (1.3328) needed to invalidate the bearish continuation pattern.

Having said that, with price tracking below all four moving averages, a topside push may prove to be a mere short-term correction.

With that in mind, continuation of the primary downtrend looks likely if price fails to breach the 38.2% Fibonacci (1.3328), with a daily close below the 1.3100 mark needed to carve a path to test the yearly low (1.2994).

Canadian Dollar Poised to Fall Ahead of Bank of Canada Rate Decision

Retail trader data shows 70.49% of traders are net-long with the ratio of traders long to short at 2.39 to 1. The number of traders net-long is 6.45% higher than yesterday and 3.92% higher from last week, while the number of traders net-short is 17.51% lower than yesterday and 26.94% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/CAD prices may continue to fall.

Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed USD/CAD trading bias.

— Written by Daniel Moss, Analyst for DailyFX

Follow me on Twitter @DanielGMoss

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Gold Price Coils Up in Tight Range. Will US Election Trigger Breakout?

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GOLD PRICE OUTLOOK:

  • Gold prices ranged above a key support level at US$ 1,900 amid souring sentiment
  • The US election may serve as a catalyst for gold trading next week
  • 79% of the retail gold traders (within IG)are in long positions, slightly higher than a week before

Gold prices consolidated at above US$ 1,900 this week amid souring market sentiment due to a resurgence in coronavirus cases around the globe. The absence of geopolitical catalysts and a relatively muted US Dollar index have led gold prices to consolidate within a tight range between US$ 1,900 – 1,910. Some traders may prefer to sit on the sidelines until the political skies are cleared after the US election, which is only one week from now.

Although Democratic presidential candidate Joe Biden appears to have a comfortable lead in national polls, the potential tail risk of a Trump-win scenario can’t be neglected. This renders the risk-averse US Dollar susceptible to a strong haven bid should the election outcome derails from the poll forecasts. A strengthening US Dollar is likely to weigh on precious metal prices, especially when ‘risk off’ sentiment is prevailing.



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily -1% 4% 0%
Weekly 5% -4% 3%

The medium-term outlook, however, appeared biased towards the upside as the Fed continued to expand its balance sheet, albeit at a much slower pace compared to earlier this year (chart below). The Federal Reserve balance sheet hit an all-time high of 7.177 trillion in October, surpassing the previous record seen in early June. Ample liquidity and ultra-low interest rates may buoy the medium-term outlook for precious metal prices, albeit short-term pressure remains.

Gold Price Coils Up in Tight Range. Will US Election Trigger Breakout?

Source: Bloomberg, DailyFX

Technically, gold prices came off the all-time high (US$ 2,075) in early August and have since entered a three-month consolidation. Prices attempted to stabilize since end September after finding a strong support at US$ 1,870 (the 76.4% Fibonacci retracement).

Gold prices have also formed a few bearish harmonic pullbacks (highlighted in black straight lines) before entering into an “Ascending Channel” in October. Immediate support levels can be found at US$ 1,900 (50-Day SMA), followed by US$ 1,883 (lower Bollinger Band). A narrowing Bollinger Band width suggests that tight range-trading may continue.

Gold PriceDaily Chart

Gold Price Coils Up in Tight Range. Will US Election Trigger Breakout?

IG Client Sentiment indicates that retail gold traders are heavily leaning towards the long side, with 79% of positions net long, while 21% are net short (chart below). As gold prices consolidate, retail traders have trimmed long (-1%) positions and added short (+7%) bets overnight. Compared to a week ago, traders have added to both long (+4%) and short (+1%) exposure.

Gold Price Coils Up in Tight Range. Will US Election Trigger Breakout?

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— Written by Margaret Yang, Strategist for DailyFX.com

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Can Stock Markets Predict Presidential Elections?

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How Can Stock Markets Impact US Presidential Elections?

  • How can returns in the Dow Jones, S&P 500 influence voters at the polls?
  • This study analyzes the indices 1 year and 3 months before elections
  • Do voters respond to stock performance as an election nears?

Introduction

Many factors can impact the outcome of US presidential elections, such as the shape of the economy, a voter’s background, turnout, outcomes in swing states and more. But what about returns in the stock market?

This is a special report that will analyze the performance of the S&P 500 and Dow Jones leading up to the 22 presidential elections since 1932. I will examine how the two indices performed on average one year and 3 months before an election, comparing their returns against whether or not the incumbent party won.

Background

First, let us consider how might the performance in stocks influence elections in the first place? The price of a stock represents ownership of a fraction of a corporation, and is influenced by supply and demand forces reflecting the given firm’s expected fortunes. Some stocks will pay you a dividend and grant you voting access in shareholder meetings. But most importantly, you gain the right to sell the stock in the future.

If the price of a stock rises in value, the holder can make a profit by selling at a higher price than where they entered. If investors think that a business can make more returns in the future, boosting demand for their shares, then the price will often rise. There can be both specific and systematic forces that determine which way a stock can go. This piece focuses on the latter, or how the shape of the US economy as a whole drives stocks.

The S&P 500 and Dow Jones are stock indices that weight key sectors in the economy differently, such as information technology, real estate and energy. If their returns are positive heading into an election, this could be because investors expect the underlying businesses to generate more profits in the future. This could be due to a rosy outlook for economic growth, perhaps raising the odds of the incumbent party maintaining its grip on power.

Conversely, if stock returns are negative heading into an election, it could be due to a more pessimistic outlook for growth. If this is the case, then one might reasonably assume that the party running for reelection could be at a higher risk of losing its position. That is only the case, of course, if voters generally value the performance of stock markets. This is a limitation in this study, discussed in further detail at the end.

S&P 500, Dow Jones Returns 1 Year Before Presidential Election

Of the 22 elections since 1932, there were 18 instances when returns in the S&P 500 and Dow Jones one year before a presidential election averaged positive. Of those 18 occurrences, the incumbent party won 11 times, or about 61.11%. Returns in the stock market were negative the other 4 times. Of those, the incumbent party lost 3 times, or about 75% – see table below.

S&P 500, Dow Jones: Can Stock Markets Predict Presidential Elections?

S&P 500, Dow Jones Returns 3 Months Before Presidential Election

What happens in this study when the time frame changes from 1 year to 3 months before an election? In this case, of the 22 occurrences, there were 13 when stock returns were positive. Of those instances, 11 times, or 84.62%, the incumbent party won. Meanwhile, there were 8 instances when stock returns were negative. The incumbent party lost 7 times in this case, for about an 88.89% failure rate.



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily 7% 1% 4%
Weekly 18% -7% 3%

S&P 500, Dow Jones: Can Stock Markets Predict Presidential Elections?

Conclusion

In short, the 3-month data seems to offer more consistent outcomes compared to 1-year out. More often than not, the performance of the stock market closer towards an election seems to correlate with whether or not an incumbent party wins. It should be noted that correlation does not imply causation. It could be that voters place greater emphasis on stocks 3 months before an election as they pay more attention to current events in preparation for casting ballots. There are some limitations to this study.

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Study Limitations

The election sample space is limited to 22, more observations tend to increase the accuracy of results.

This data does not take into account how much voters value stock returns around elections. According to Gallup, as of June 4 2020, about 55% of Americans reported owning stock.

This data does not take into account the depth of gains versus losses in stocks around election years. That is, do higher stock returns increase the likelihood of an incumbent party winning and vice versa?

— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter





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