Officials seem to have made some progress regarding the NAFTA Agreement and a will hold a press conference, most probably, later on today. US Trade representative Lighthizer stated that he is hopeful about the talks however realizes that a lot of work needs to be done. Meanwhile, media report, that a collapse in the NAFTA agreement could hurt heavily US farmers, highlighting the US interests in keeping the NAFTA agreement alive. On other news, Canadian plane maker Bombardier Inc. won a major U.S. case on Friday, as U.S. court rejected a Boeing complaint. Government officials, stated that the court ruling underscores the importance of free trade at a time when the NAFTA negotiations move at a slow pace. Mexico Economy minister Guarjado said that, there is a window of opportunity to strike a deal from February to July and it could be implied that negotiations could continue beyond the deadline of March and close to the Mexican elections. We expect any positive news or outcome of the negotiations to strengthen USD, CAD, MXN, as all three economies have to gain on a win-win-win situation.
The USD/CAD moved in sideways manner in the past few days, staying mostly below but close to the 1.2350 resistance line. We see the case for the pair to continue to trade in a sideways manner in the short term, with a light bearish tone, as it could remain under the downward trend line which started to formulate since the 19th of December. Should the bulls take the reins on the pairs direction we could see it breaking the 1.2250 support line and aim for the 1.2100 support level. Should the bulls take the driver’s seat we expect the pair to break the 1.2350 resistance line and maybe even break the 1.2450 resistance zone.
The sixth round of the NAFTA negotiations resumed yesterday in Montreal. There were some good signs upon the restart as US president Trump said that talks were doing “pretty well”, however he also reiterated his opinion that “if it doesn’t work out, we’ll terminate it”. Media reports suggest that Mexico and Canada are prepared to be flexible in some hot issues like, that the amount of North-American produced content in North American cars should be boosted, however oppose the idea of it being US made. Also differences remain on US demand for changes in resolving various disputes. Unofficial deadline should be the end of March as Mexican elections approach but we see the case for them to linger on as the complexity of the issues increases. We also see the case for any progress in the NAFTA negotiations to strengthen both USD as well as CAD as we see a win win situation in a possible positive result of the NAFTA negotiations.
The USD/CAD traded in a rather sideways manner in the past ten days, remaining near the 1.2450 resistance line. We expect he pair to continue to trade in a sideways manner over the short term, however we would like to point out that the pair could be quite sensitive to any further news regarding the NAFTA negotiations, oil prices and any other financial releases, especially on the CAD side as for example the Retail sales on Thursday and the CPI rate on Friday. Should the pair come under buying interest we could see it breaking the 1.2450 resistance line and also breaching the 1.2520 resistance zone. On the other hand, should the pair come under selling interest we could see it breaking the 1.2350 support line and aim for the 1.2250 support level.
Media reports suggested that Canadian officials are convinced that the US will leave the NAFTA agreement. The comments casted doubts about prospects on negotiations to modernize NAFTA, which are to have a sixth round on January 23-28. In the past, president Trump had repeatedly threatened to abandon NAFTA, unless major changes were made and was recently quoted saying “I want out” as current negotiations seemed to produce little results. It remains uncertain however, if USA would quit NAFTA even if Trump gave the required six month warning. On the Mexican side of the trilateral negotiations, there were no comments on the issue but analysts predict that should
Trump trigger the six month leaving process, Mexico may pull out of the negotiations. Analysts predict that the US may ultimately not pull out of the agreement, but the market has extensive concerns and a high amount of uncertainty just showed up on the horizon.
USD/CAD rose substantially yesterday, reflecting the recent NAFTA developments, however it stabilized this morning at the 1.2520 support line. We see the case for the pair to continue trading in a sideways manner, however it may be quite sensitive to any further developments on the issue. Also, any good readings regarding today’s US financial data may influence the pair towards a further rise. Should the pair come under renewed buying interest it could break the 1.2593 resistance level and aim for the 1.2650 resistance hurdle. On the other hand should the pair come under selling interest it could break the 1.2520 support level and head for the 1.2450 support zone.