Tuesday, January 25, 2022

USD/CAD Rebound But Trend Remains Downward Swing

The dollar rebounded against the loonie on Monday after Friday’s fall. A stronger-than-expected Canadian jobs report pushed the yield gap in favor of the Canadian dollar. A 55K increase in an economy 10 times smaller than the US economy would equate to a 550K gain in the United States. US Treasury yields moved higher on Friday on stronger-than-expected wage gains.

technical analysis

USD/CAD moved higher on Monday but could not reclaim resistance. The exchange rate tested resistance near the 50-day EMA at 1.2689. Support is seen near the 200-day SMA at 1.25. Short-term momentum has turned positive as Fast Stochastic generated a crossover buy signal. Medium term momentum has turned negative as the MACD (Moving Average Convergence Divergence) index generated a crossover sell signal. This scenario occurs when the MACD line (12-day moving average minus 26-day moving average) crosses above the MACD signal line (MACD line’s 9-day moving average). The MACD histogram is printing in negative territory with a downward sloping trajectory which indicates a lower exchange rate.

Can the Fed be more proactive?

Goldman Sachs wrote in a note to clients on Sunday that it now expects the Fed to increase rates by 25-basis points to 4 times during 2022. The call comes after the Labor Department released data that showed wage inflation was rising faster than expected. Average hourly earnings grew at their fastest pace in nearly 40 years. Wages climbed 0.6% for the month and rose 4.7% year over year. This is compared to the respective estimates of 0.4% and 4.2%.

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