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The surge in oil prices has supported the commodity-dependent Canadian dollar to strengthen against the greenback. Market Reports indicate that oil traders have covered some short positions after a volatile trading week, which has contributed to some correction in oil prices today.
In a research report from Capital Economics earlier today, the research house indicated the possibility of a sharp sell-off in oil prices if Britain voted to leave the European Union.
Crude oil prices gained on Friday for the first time in 7 days to as high as $47.78 per barrel after the murder of the British politician Jo Cox led to the suspension of campaigning for the referendum. Analysts said the incident could raise a sentiment supporting the Remain Camp, at a time when the “Leave” campaign was gathering momentum.
The Canadian Consumer Price Index, measuring the price of goods and services purchased by consumers, excluding the 8 most volatile items, rose 0.3% in May after witnessing a 0.2% rise in April. Rising prices can lead central banks to raise interest rates to control inflation. This becomes especially important in an environment of dovish monetary policies across the global economic system.
The market currently awaits a speech by Bank of Canada Senior Deputy Governor Carolyn Wilkins on Saturday for more clues regarding future monetary policy.
In the US, the annualized rate of new residential units that began construction during May dropped to 1.16 million from April’s reading of 1.17 million, as the construction of multi-family housing units declined. However, applications for new permits continued to register encouraging growth in May, growing by 0.7% from April, to an annual rate of 1.14 million units. The continuing rise in housing permit applications and issuance is expected to support economic growth in the second quarter. Despite the positive housing market data, after the shocking Non-farm Payrolls Report released earlier this month, it is nearly impossible for the U.S central bank to raise the benchmark rate this summer. As a result, the greenback is expected to remain fragile in the near term.
Fig. USDCAD D1 Technical Chart
After falling continuously from the resistance level at 1.46895, USDCAD has been moving sideways around the area of the Fibonacci 23.6%, under pressure from the two moving averages. RSI is lingering around level 46 and moving towards the oversold territory, indicating a bear market formation. The price is anticipated to continue the down-move, and testing the support area at 1.24596, created on May 3, 2016.
Buy Digital Put Option from 1.28826 to 1.24596 valid until 20:00 June 17, 2016