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.
The Canadian employment data for December were also released on Friday afternoon with a surprise figure in employment change of almost 79K and the unemployment rate dropping to 5.7% instead of increasing to 6% as forecasted. All these news supported the Canadian dollar on Friday and subdued the average to lower than expected PMI figures also for December. The strong employment data reignited discussions for a potential rate hike from the BoC on the 17th of January from 1% to 1.25%. It should be noted at this point that Governor Poloz in an interview in December implied that he’s not going to pre-warn markets ahead of the next rate hike. The market currently has priced in a potential rate hike at 69.57%, increasing interest to future developments. We may see a more volatile CAD in the next nine days as the potential rate hike will hang in the balance.
USD/CAD dropped by approximately 98 pips on Friday mirroring the double effect of week US employment data and strong Canadian employment data. The pair broke the 1.2450 support level and continued to trade at lower levels than before the data release, however above the 1.2350 support level. We expect the pair to continue to trade in a sideways manner with risks tilted to the downside for the short term. Should the bulls take the driver’s seat, we could see the pair breaking the 1.2450 resistance level and aim for the 1.2520 resistance barrier. On the other hand should the bears take the reins, we could see the pair dropping below the 1.2350 support level and aim for the 1.2250 support area.
As a commodity currency, the CAD continued to strengthen after the recent increases in oil prices. The looney could be further supported as increased demand may arise due to the current weather conditions in the US. However it should be mentioned that the currency was supported throughout the past two weeks also by good financial data releases from Canada. The Canadian dollar could remain on the headlines in the upcoming weeks as more financial data is due and the winter weather conditions could support oil prices even further.
USD/CAD continued to drop throughout last week marking a downward trend line and heading towards the 1.2520 support line. We expect the market to remain in a bearish mood for the short term and should that be the case we could see the pair breaking the 1.2520 support line and aim for the 1.2450 support level. Should the second support level be breached we could see the pair aiming for the 1.2350 level. On the other hand should the bulls take the driver’s seat we could see the pair testing the 1.2650 resistance level.
As for today’s other economic data, the preliminary HICP rate for Germany is to be released and is expected to slow down somewhat. As the figure is preliminary and the political news regarding the EUR seem to be of neutral to negative tone the market could move somewhat.