Talking Points:

• USD/CAD Technical Strategy: Upside Remains Favored On Trump Victory
• USD Strength On Inflation Expectations Expected Trade Renegotiations in Trump
• Bank of Canada Dovishness Expected To Rise on Trump Election

Quick Fundamental Take:

The Canadian Dollar has traded alongside other commodity currencies as a lower-Beta form of EMFX, which were hit hard by the surprise election victory for Donald Trump. The higher price of USD/CAD on the post-election trading day has validated the uptrend that has unfolded in a choppy fashion since early May.

On Monday, Donald Trump said that voters in the U.S. would deliver “Brexit plus, plus, plus.” Now, traders are looking at that statement to understand what the implications of the statement mean, and how trade partners could be affected by President-Elect Trump’s new policies. The implications of new trade policies that are likely to be redrawn under the Trump Presidency was most clearly seen against the Mexican Peso that fell by nearly ~12% early on Wednesday as the votes were tallied to the point to declare Trump as the President-Elect.

Access Our Free Q4 Dollar Outlook As The US Dollar Faces An Unorthodox Presidential Election

A similar move as seen in MXN or even the offshore Renminbi that is also trading at its weakest level ever against the USD could bleed over to commodity FX with heavy trade exposure to the U.S. like the Canadian Dollar. We heard Canadian PM Trudeau said he is looking forward to working toward a stronger working relationship with Trump, and a push higher in Crude could help Canada.

Many traders have looked at yields post-Election as an indication of what is expected from Central Banks. Yields have moved higher however the spreads of sovereign debt against the U.S. 2-year, which can be seen as a proxy of the Federal Reserve’s policy rate path has widened on the day after the election. Longer on the curve, the US 10-Yr yield has an intraday move of 23 bps that would be a record intraday move, and the current open-close range would be the largest move since 2011.

Having a Hard Time Trading USD/CAD? This May Be Why

In addition to yield spreads, traders may want to keep an eye on Bank of Canada Interest Rate expectations. Depending on how aggressive the Trade Agreements are re-arranged, we may hear more dovish language from the Bank of Canada that could encourage a Bank of Canada Rate Cut that was first entertained when Stephen Poloz noted that the Bank of Canada discussed stimulus at their last meeting.

Technical Focus:

D1 USDCAD: No Run-Away Move, But Further Trend Advance Expected

Chart Created by Tyler Yell, CMT

The price of USD/CAD traded at its highest price on Wednesday since early March when USD/CAD was in the midst of a sharp decline from 1.46899 to a low in early May of 1.24607. We’ve continued to favor upside, which is only confirmed from the Fundamental backing of the technical picture on the chart.

If price remains above the Ichimoku Cloud, the path of least resistance remains higher, and we could be paving the way for an aggressive rise as we move from a leading diagonal to an impulsive wave ‘iii’ of ‘C’ in Elliott Wave terms. The leading diagonal view is encouraged by the recent break above the pattern high at 1.3313, and the three-wave move toward a 50% retracement of the diagonal down to 1.3005.

In addition to Elliott Wave and Ichimoku, we have added a Modified Schiff Pitchfork applied to the chart above. The Modified pitchfork originates the median line from the 50% retracement of price and time of the point of X and A. The Modified Schiff Pitchfork places a helpful frame of price action, which should be watched to see if we can break through price resistance to higher levels. A break above the 50% retracement of the January-May range would be an early indication of a strong breakout.

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In addition to the short-term volatility, we’ll continue to favor buying support (not a trade recommendation), as the potential for a strong move higher continues to build in USD/CAD.

The next upside target is the 50% retracement of the January-May range at 1.3575. 1.35572 is also the 100% Fibonacci Expansion that aligns with an equal wave off the August low that would match the May to July rise. If 1.3575 breaks, we’ll be on the watch of the 61.8% retracement of the same range at 1.3838.

A few of the support levels that would need to break to change the tune from Bullish to Neutral is 1.3312, the 38.2% Fibonacci Retracement of the Jan-May range followed by Today’s low of 1.3263.

Key Short-Term Levels as of Wednesday, November 09, 2016

T.Y.

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