Oil bulls test after Fed rebound below 1.2800, US PMI and Canadian retail sales in sight
- USD / CAD is struggling to keep the rebound off the week’s low.
- The Fed’s tapering sparked the latest rally, but bullish pairs appear to be struggling with the details.
- Growth optimism, news from China favors oil buyers encouraging EIA inventory drawdown.
- Preliminary US Markit PMIs for September, Canadian retail sales for July will decorate the schedule, risk catalysts are key.
USD / CAD softens post-Fed rebound to weekly low near 1.2770 during Thursday’s Asian session. While the Fed’s tapering indexes reminded the bulls, firmer oil and risk sentiment defended the pair’s sellers ahead of major monthly data from the US and Canada.
The US Dollar Index (DXY) ended Wednesday on a firmer note with the largest daily gains in a week after Fed Chairman Jerome Powell surprised markets with his hawkish style. Fed Boss Powell not only alluded to the positive conditions corresponding to the consolidation of asset purchase but also signaled the start of tapering as early as the next meeting, albeit on good employment data not needing to numbers too strong.
As a key move, the Fed responded to market expectations to keep the Fed rate unchanged at 0.25%, but policymakers were divided on the rate hike, now expecting a start from 2022 or 2023 compared to the previous support for 2023. The same allusions to warmongering seen by policy makers.
Although the DXY took advantage of the Fed’s rate cut announcement, market sentiment remained firmer as hints of rate hikes were unclear and the US central bank downgraded its growth forecast for 2021.
The Chinese Communist Party’s (CCP) deal with struggling real estate player Evergrande to avoid default and protect the monetary system also contributed to the risk atmosphere, following the bank’s massive cash injection. People’s Republic of China (PBOC).
Besides the optimistic mood, the change in EIA crude oil inventories for the week ended September 17, -3.481 million from -6.422 million previously, adds to the weakness of the USD / CAD as oil firmer favors the Canadian dollar due to Ottawa’s reliance on energy exports.
Looking ahead, risk catalysts could entertain USD / CAD traders, mostly bears, ahead of preliminary readings of US Markit PMI for September and Canadian retail sales for July. Given the optimistic expectations of the programmed data, the pair looks poised for further weakness.
USD / CAD sellers can rely on the failure to break through the 1.2830 hurdle, followed by a downward breakout of two-month old support turned resistance near 1.2800, to aim for a Three week old support line near 1.2690.