The loonie has been rallying of late, benefiting from strong U.S. economic data and the rising oil price. The Canadian economy is a major exporter to the U.S., and oil is its biggest export. These twin catalysts have been pushing USDCAD downward despite the wider USD rally. Yesterday, USDCAD tested the lower boundary of its month-old 1.0400 - 1.0750 range, touching a low at 1.0365 before retracing above 1.0400 again. But the move was conspicious on low volume. Should the pair break down the current support, little stands in its way of reaching 1.0280 and beyond that 1.0200, its mid-October low. Range traders will however have noted the reversal signals: the hammer-candle on the daily chart (see below) and the Stochastic buy-signal. At Go Forex we take a bullish view of USDCAD in the short-term.
USDJPY has begun a major trend reversal as the outlook for the U.S. and Japanese economies diverge. After grinding lower for much of the autumn, the pair made a quick dive towards the 84.00 mark only to be bought back as U.S. data improved in December, and hey presto, it touched above 92.00 yesterday. The Japanese government, which fumbled the strong Yen issue politically since coming to power, must be thanking its stars for the USD strength. Looking over the daily chart we see a wedge-formation, indicating a critical test for the USDJPY rally which must stay above 92.00 in order not to fade back into the 88.00 - 92.00 range. With little economic data of significance out this week, we expect the first week of January to be decisive for the pair, and will watch it with interest. Longer-term our bias is to the greenback over the Yen.
Traders will focus on two major items of U.S. data today. The Chicago PMI for December is expected to drop slightly to 55.2 from 56.1, but nevertheless to continue its trend of expanding. The strong corrrelation between the Chicago data and next week's ISM figure should ensure that that the Chicago PMI sets the the overall market tone in the U.S. session. Later on, oil traders will be looking for yet another draw in the EIA inventory report which is forecast at -1.7 million barrels. Oil seldom fails to react strongly to this report, so buckle your seat-belt, as a lower than expected number will likely send oil back to $80.
USDCAD Support/Resistance: 1.0365/1.0493
USDJPY Support/Resistance: 91.85/92.25
Crude Oil Support/Resistance: 78.00/79.35
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