Omicron keeps the markets on the lookout

  • The panic of the Omicron market last Friday remains the scene.
  • WTI lost 2.8% on the week, 15.3% from last Friday’s open.
  • US Federal Reserve officials talk about inflationary interest rate policy.
  • FXStreet Forecast Poll sees vulnerability in USD / CAD.

Omicron market panic remained the main feature of this week’s trading. Dollar-Canada * managed a modest gain of 51 points from the end of last Friday and its close of 1.2837 was the highest since February 1 of this year.

Fundamental trends remained favorable to the US dollar and USD / CAD.

West Texas Intermediate (WTI) lost an additional 2.8% Monday through Friday, ending at $ 66.17 and taking the price drop from $ 78.10 opened on November 26 to 15.8%.

Yields on Treasuries in the United States and Canada have prolonged their slump since opening last Friday. The yield on 10-year bonds in the United States fell 28.7 basis points to 1.356%, its lowest level since September 22. The Canadian 10-year-old lost 32.7 points to 1.437%, its lowest level since September 27.

Over the past two weeks, the spread between these bonds has narrowed from 14 basis points on November 23 (10-year Canada 1.807%, 10-year US 1.667%) to 8.1 basis points on Friday. .

This diminishing advantage has undermined the Canadian dollar and reflects the Federal Reserve’s recent rhetorical shift towards controlling inflation.

One of the things Fed Chairman Jerome Powell said is that it might be time to remove the term “transient” that the bank has used to characterize inflation for most of the year.

Several other Fed officials joined the newly formed inflation chorus this week.

San Francisco Fed President Mary Daly said the bank may need to come up with a plan to raise rates. Atlanta Fed Chairman Rafael Bostic noted that it might be “appropriate to move forward [rate] take off. “Cleveland Fed President Loretta Mester said if inflation remains high,” we are in a position to be able to increase if we have to. “

The coordination of these public statements is a strong indication that the Federal Open Market Committee (FOMC) meeting on December 15 is preparing for a formal change in rate policy.

Canadian economic data was excellent. November’s net employment development report listed 157,700 new hires, nearly five times the 35,000 forecast and an even larger improvement from October’s 31,200. The unemployment rate stood at 6%, much better than the forecast of 6.6% and 6.7% in September.

The contrast to the US non-farm payroll report in November, with only 210,000 new hires out of a forecast of 550,000, was stark but did not change the tilt of the markets towards the USD / CAD.

Other employment data in the United States was encouraging. Unemployment fell to 4.5% and underemployment to 7.8%, both far better than expected and the lowest in the pandemic. The participation rate reached 61.8%, its highest level since March 2020.

The purchasing managers’ indices (PMIs) for the manufacturing and service sectors were strong. The overall in-service PMI set an all-time high at 69.1 and the new orders index was unchanged at 69.7, another high and much better than the projection of 64. Initial jobless demand is rose to 222,000 in the last week from 194,000 previously, indicating that the labor market continues to recover.

Canadian industrial prices accelerated in October. Prices for industrial products rose 1.3% after rising 1% in September, and the raw materials price index nearly doubled to 4.8% from 2.5% the previous month.

* Currency market terminology for USD / CAD

USD / CAD outlook

The Bank of Canada (BOC) meets Wednesday. While no policy changes are expected, the bank has already ended its bond buying program, soaring inflation could bring much stronger rhetoric from Governor Tiff Macklem. The consumer price index (CPI, year-on-year) fell from 1.% in January to 4.7% in October. The close ties between the US and Canadian economies ensure that the Fed’s extensive bond-buying program exacerbates inflation on both sides of the border.

In the United States, IPC for novemberer Friday will be the main event. All the rate is expected to increase to 6.8% from 6.2% and the core to 4.9% from 4.6%. These results will be strengthen the outlook for the Fed’s tapping, regardless of Omicron’s developments.

The Federal Reserve’s pending official change in the fight against inflation at the FOMC meeting on December 15 will have a bigger impact on the market than any potential change in the BOC barring a rate hike.

The ascending channel that dates from the end of October is the dominant feature of the chart.

The close of the 10-month high on Friday offers clearance for further gains, although it is far from the 1.2949 August 20 high. Relatively sparse resistance between the current market and 1.3000 makes movement higher the path of least resistance. One particular target is the 38.25 to 1.2972 Fibonacci retracement line of the decline from March 18, 2020 (1.4651) to June 2, 2021 (1.2035).

The USD / CAD bias is higher but the steep six-week upside makes it vulnerable to profit taking.

Statistics of Canada November 29-December 3


US statistics from November 29 to December 3


Statistics of Canada December 6 to December 10


US statistics from December 6 to 10


USD / CAD technical outlook

MACD (Moving Average Convergence Divergence) has been a buy signal since the signal line crossed on October 29th. socket. The Relative Strength Index (RSI) reaching overbought status is an identical sign. Momentum in True Range picked up on Friday, but is still well below the November 26 rise.

The 21-day moving average (MA) broke through the 50-day, 100-day and 200-day moving averages during the USD / CAD rise in November. Additionally, the 100-day MA crossed over to the 50-day MA, building on August and September trading levels, and indicating that the short- and medium-term outlook for USD / CAD is positive. .

Resistance: 1.2865, 1.2915, 1.3000, 1.3050
Supported: 1.2800, 1.2775, 1.2755, 1.2700

FXStreet Forecast Survey

The FXStreet Forecast poll expects the recent prosperity of the USD / CAD to be overtaken by for-profit sales.

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