U.S. Dollar week in review

In between Yellen teasing rate hikes despite only one hike happening so far and the strong U.S. employment figure, has the U.S. Dollar lost its bullish outlook? Bloomberg recently ran “Dollar Falls Most in 7 Years; Dow Erases 2016 Loss on Rate Path” headline.

“The dollar posted the largest two day drop since 2009” Bloomberg News continues, but really this drop began back in mid-January of 2016.

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USDCAD 1-Day

Yes, last week’s drop was indeed very significant and we are approaching a point where my moving average fan is about to cross over. The significance here is that I do not believe the trend will likely continue in the dollar’s favor, especially not against the Canadian Dollar.

To recap what happened in last week’s FOMC meeting, the Fed gave a dovish statement reducing the rate hike forecast from the planned 4 hikes down to 2 hikes throughout 2016 citing global economic risks. This shouldn’t be a surprise as the Euro Zone posted deflationary figures for February after five months of positive inflation figures. In addition to the further stimulus injected in the Euro Zone, the Reserve Bank of New Zealand also cut its rate.

Given these global economic conditions especially as the Euro Zone showing no stabilization in its inflation figures, I highly doubt the Fed will be able to proceed with another rate hike at all this year. I do not foresee them cutting rates as that would just be an embarrassment to the fact that they raised rates at all last year.

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On another note, crude is showing recovery as WTI closes just under the $40 mark. A bit out of scope for this blog as I aim to focus on FX trade opportunities, but I think it is interesting to note the optimism surrounding a higher oil price. The Baker Hughes rig count figures show U.S. oil drillers add one rig after 12 weeks of cuts. However, this isn’t all sunshine and daisies. As oil drillers add rigs on price optimism, this may once again create that same supply and demand imbalance.

For the week ahead, I continue to focus my attention primarily on USDCAD trades. I project another round of short entries is possible on market open.

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USDCAD 15-Minute

Two takeaways from the 15-minute chart. The first is we see a sell-off on last week’s close on Friday at 5 PM New York time. Traders going long have closed out their position at the end of the trading week. Secondly, price continues to fail to breakout above. The second arrow shows great significance as not only did fail to breakout above, traders also sold this pair lower.  For the week ahead, I am continuing to look for the short opportunities on this pair.

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USDCAD 1-Day

Switching over to the daily, the 1.2860~ mark is my targeted close out area as this marks a resistance turned support zone. Rather than holding through the price test behavior, I aim to close out my trades at or near this zone and re-enter as I see fit.

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