Strategy
Buy 1.3170 for 1.3650 with a stop 1.2940. Estimated time duration 3 months.
Technical View
After reaching a high of 1.4667 on 19 Mar 2020, price has been on a decline. Price reached a low of 1.3133 on two occasions but managed to stay above this support. The new lower lows made were marginal. This could be a sign that price is approaching a possible price bottom and a reversal is due soon. Although price is still below the 20EMA, the slope of the 20EMA has been getting flatter, hinting of a loss of downside momentum. Stochastic is in the oversold zone for some time now and recently there was a bullish crossover just below the oversold extreme.
MACD is also flat, hinting of a loss of momentum on the downside. This is another hint of a possible price low in the process of forming. The downside could be limited and price could be about to reverse and move up to the Fibonacci 50% correction point which also comes in near the previous high at 1.3720.
Fundamental View
Crude oil price has rallied from below US$10 to nearly US$40 and this has helped the Canadian dollar to strengthen against the US dollar. However, Crude oil price has stabilized just above the US$40 mark and the upside for Crude oil price could be limited due to slowdown in global economy as a result of the COVID-19 pandemic. While demand has recovered with improving COVID-19 situation and supply has been reduced in the past month to stabilize prices, supply is likely to increase should demand increase, putting a cap to upside price movement.
Bank of Canada has presented in June 2020 an outlook that is not too rosy and this is likely to cap the Canadian dollar’s strength. On the other hand, US economic data has been improving. Business activity, home sales and even PMI are improving. If these data continues to improve, the US economy is likely to improve and recover. The US dollar is likely to strengthen as a result.
The Federal Reserve is likely to keep interest rate close to zero in order to aid the economy to recover. But the Canadian central bank is also likely to keep its interest rate close to zero. Fed’s decision to keep interest rate close to zero is also likely to have been factored into the decline of the USD/CAD rate to the current low as well.