Sell 1.2350 for 1.1300 with a stop above 1.2660
Price has been on a downtrend since March 2020 but this downtrend may not be over as yet. Both momentum indicators are hinting the market is oversold and there is likely to be a price correction. Stochastic was deeply oversold but has climbed above the oversold zone recently. MACD may be rising but is also in the bearish zone. Both indicators are indicating this could be a correction in the bearish trend.
Price is likely to be capped by the previous support turned resistance line at 1.2360 and from this point, we could see a resumption of the bearish trend. There is also a possibility price might rise to the Fibonacci 38% of the decline from the high of 1.4667 in March 2020 to the recent low, but this may not be possible given the current fundamental situation.
Given the dovish stance by the U.S. Federal Reserve, it is likely that the US dollar will remain weak till 2023. On the other hand, the Bank of Canada has warned that tightening may have to soon given the strong economic recovery and an increase in inflation. Given the divergence path in interest rate policy, the US dollar is likely to weaken against the Canadian dollar.
With global economies recovering, we have seen an increase in crude oil price as well as commodities prices. As production of goods increased, crude oil demand has also gone up, driving up crude oil price which is benefiting the Canadian dollar as Canada is an exporter of crude oil. Besides crude oil, other industrial metals have also seen their prices surged as a result of an increase in demand as the global economy recovers from the pandemic.
With vacation for COVID-19 on the increase and as more countries have their population vaccinated, is it likely to lead to a faster re-opening of global economies which is likely to keep economic growth on a rosy path. This is likely to increase demand for crude oil and industrial metals. This is also likely to push investors away from the safe haven US dollar into other more risk assets and currencies.