US-Canada Bond Spread Widens as US Economy Roars

Forex

Traders' Opinions

Summary:

The US 10-year yield is currently hovering around 4.25%, reaching levels last witnessed at the close of 2022. This surge is primarily attributed to the robust US economy and the expectation that the Federal Reserve will keep interest rates "higher for longer." The widening spread between US and Canadian 10-year bonds, which is favoring US bonds, is indicative of these factors. This article delves into the implications of this phenomenon on the USDCAD currency pair, providing insights for investors.

BUY USDCAD

Close Time

CLOSED

1.35800

Entry Price

1.36500

1.35400

1.44105 +0.00631 +0.44%

40.0

Pips

Loss

1.35400

1.35399

Exit Price

1.35800

Entry Price

1.36500

The financial markets are abuzz with the recent surge in the US 10-year yield, which is now flirting with the 4.25% mark. This level has not been seen since the tail end of 2022. Behind this surge lies the juggernaut that is the US economy, steaming ahead despite global uncertainties. Additionally, there's a growing sentiment that the Federal Reserve is in no rush to lower interest rates, thus keeping them "higher for longer." This potent combination of economic strength and monetary policy expectations is having ripple effects across various financial instruments, including the US-Canadian 10-year bond spread and the USDCAD currency pair.

The US-Canada 10-Year Bond Spread Widens

One of the most noticeable impacts of the soaring US 10-year yield is the widening of the spread between US and Canadian 10-year bonds. This spread is increasingly tilting in favor of US bonds, signifying a preference for the American market.

Chart analysis reveals interesting dynamics. The 5-week Exponential Moving Average (EMA) for the spread has recently crossed above the 10-week EMA. This bullish crossover, represented by the black ellipse on the chart, suggests an upward momentum favoring US bonds. Furthermore, the weekly Relative Strength Index (RSI) has surged above 50, as indicated by the blue rectangle. This is a bullish sign, indicating that there is robust underlying momentum supporting the spread's expansion.

Implications for USDCAD

The dynamics in the bond market are not isolated but have consequences for other financial instruments, notably the USDCAD currency pair. The widening bond spread could have implications for the exchange rate between the US dollar (USD) and the Canadian dollar (CAD). USDCAD: US-Canada Bond Spread Widens as US Economy Roars_1

USDCAD: US-Canada Bond Spread Widens as US Economy Roars_1

Currently, USDCAD is positioned in a way that suggests a potential fall towards the buy zone, ranging between 1.35673 and 1.35823. The level at 1.35673 is particularly significant, as it is identified as an overlap support, a point at which the currency pair might find renewed buying interest.

For those considering trading USDCAD in light of these developments, setting a stop loss at 1.3540 is advisable. This level is just below an overlap support, acting as a safety net should the currency pair experience unexpected volatility.

Conversely, traders might be eyeing a take profit point at 1.3650. This level corresponds to multiple swing-high resistances and could represent a suitable exit point for those looking to capitalize on potential upward movements in the currency pair.

The widening spread between US and Canadian 10-year bonds, driven by the strong US economy and expectations of prolonged higher interest rates, has significant implications for the financial markets. Investors, particularly those involved in currency trading, should closely monitor this trend as it may offer trading opportunities in the USDCAD pair. While the USDCAD is expected to dip into the buy zone, traders should exercise caution and set appropriate stop losses to manage risks effectively. In these dynamic market conditions, being well-informed and adaptable is paramount for success.

TRADE RECOMMENDATION

BUY USDCAD

ENTRY PRICE: 1.3580

STOP LOSS: 1.35400

TAKE PROFIT: 1.3650

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

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Saif

Forex

Economic

Summary:

Unemployment rates in Japan Leeds the market.

BUY CADJPY

Close Time

CLOSED

107.410

Entry Price

108.496

106.889

109.662 +0.363 +0.33%

52.1

Pips

Loss

106.889

Exit Price

107.410

Entry Price

108.496

Fundamental analysis

Fundamentally in this pair, we will witness tomorrow the data release on Japan's unemployment rates with the market expectation to remain the same at 2.5% which will give weakness to the Japanese yen. On the other hand, we don't have that much news on the Canadian dollar this week, so it will remain strong from the previous week's data.

Japan Unemployment Rate

Prev.: 2.5% Fcst: 2.5%

Technical Analysis

In this 4 - hour diagram chart, the market price now is 107.905. We expect the price to move down the previous demand zone at 107.300. To complete this market structure called inverted head and shoulder which normally leads the price to push up and from this zone, the price will push up to the old supply zone at 108.500 Following daily chart uptrend with a 20-moving average keep up.

Trading Recommendation

Trading Direction: Long

Entry Price: 107.410

Target Price: 108.496

Stop Loss: 106.889

Risk Warnings and Disclaimers

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Eva Chen

Forex

Central Bank

Economic

Summary:

Australian retail sales rebounded in July with a month-on-month growth of 0.5%. The mid-term downtrend of the AUDUSD has reached oversold conditions, showing some signs of weakened downward momentum, though not fully dissipating.

SELL AUDUSD

Close Time

CLOSED

0.64185

Entry Price

0.62580

0.65300

0.62168 -0.00087 -0.14%

36.1

Pips

Profit

0.62580

0.63824

Exit Price

0.64185

Entry Price

0.65300

Fundamentals

Australian retail turnover increased by 0.5% month-on-month in July, reaching AUD 3.538 billion, surpassing the expected growth of 0.3%. Compared to July 2022 data, turnover increased by 2.1% year-on-year.

Ben Dorber, ABS head of retail statistics, noted that the rise in July is a partial reversal of last month’s sharp decline in turnover. He attributed the June downturn to "weaker-than-usual end of financial year sales." However, Ben Dorber cautioned against interpreting the July data as a sign of robust development in the retail sector. In discussing the underlying dynamics of the industry, he stated, "While there was a rise in July, underlying growth in retail turnover remained subdued."

Ben Dorber pointed out a lack of substantive changes in trends: "In trend terms, retail turnover was unchanged in July and up only 1.9 percent compared to July 2022, despite considerable price growth over the year."

Market observations suggest that Australian retail turnover was stronger than expected in July, growing by 0.5% month-on-month. However, this is still insufficient to offset the 0.8% decline in June. The potential trend in retail sales and observed expenditure data indicate that households are significantly cutting back on spending.

Consumer confidence is also notably weak, and the expiration of fixed interest rate periods means more household budgets are squeezed by high rates and inflation. We believe that throughout 2023, Australian households will continue to tighten their expenditures. However, with inflation slowing and actual household incomes turning positive, there is expected to be some upward room for spending in 2024.

The anticipated Australian CPI for July is expected to decrease from the previous month's 5.4% to 5.2%. These recently introduced monthly inflation indicators are crucial for the policy calibration of the Reserve Bank of Australia, as previous data was released quarterly. For this month, the key risk lies in the energy sector, with the timing of national energy subsidies and electricity bill increases potentially having an impact.

Previously, RBA Governor Lowe emphasized that bringing inflation back to target levels is their primary task, while also warning that the central bank may need to further tighten monetary policy. However, the current market expectation is that the RBA will maintain the interest rate at 4.1%, with around a 90% probability.

AUDUSD: Caution Advised Against Bottom Fishing, Further Downside Potential in the Market_1

Technical Analysis

Since testing the high at 0.6896 on July 13th, 2023, the AUDUSD pair has been exhibiting a mid-term downtrend. So far, the asset has plummeted by 530 pips from its high on July 17th, 2023. The recent four-week decline has pushed the price into oversold territory, culminating in a bullish divergence observed last Friday.

These observations suggest that the ongoing mid-term downtrend in this asset might have been alleviated, supporting the potential for a minor corrective upswing. These positive factors are also aligning with a key support level at 0.6385 (notably higher lows), coinciding with the low from November 10th, 2022, and the 76.4% Fibonacci retracement of the earlier mid-term uptrend.

However, we emphasize that there is still room for a substantial decline, though breaking below the major support level of 0.6170 seems unlikely. Before testing that bottom, we consider another support level at 0.6272. While we may not have been entirely wrong in our outlook when the asset dropped to the low at 0.6364, the recent deceleration in the downtrend might merely be a "false dawn" before an impending upward move. In terms of trading strategy, a preference for going short at highs is recommended.

Trading Recommendations

Trading Direction: Short

Entry Price: 0.6420

Target Price: 0.6258

Stop Loss: 0.6530

Valid Until: 2023-09-11 23:55:00

Support: 0.6364, 0.6299, 0.6271

Resistance: 0.6451, 0.6489, 0.6522

Risk Warnings and Disclaimers

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Eva Chen

Commodity

Economic

Summary:

Following some selling pressure earlier this month, WTI crude oil experienced a slight rebound over the weekend, providing temporary respite from the downward momentum. OPEC+'s supply cuts continue to support the market; however, uncertainties surrounding the global economic outlook, including sluggish recovery in China and signs of potential recession in the U.S. and Europe, have added some pressure to the market.

SELL WTI

Close Time

CLOSED

79.790

Entry Price

74.300

81.800

69.947 +0.158 +0.23%

201.0

Pips

Loss

74.300

81.801

Exit Price

79.790

Entry Price

81.800

Fundamentals

After enduring selling pressure earlier this month, WTI crude oil saw a minor rebound over the weekend, temporarily halting its downward trajectory.

Concurrently, recent economic data hasn't been encouraging, and central banks worldwide are maintaining a hawkish stance, potentially intensifying this pressure leading up to year-end. However, with the continuation of supply cuts, particularly voluntary reductions by Saudi Arabia and Russia on a monthly basis, the market is finding support. The trading range for WTI crude oil could potentially decline to the range of 73.73-75.82.

Over the past few days, WTI crude oil has been oscillating within a highly tense range, experiencing rapid rebounds each time it sharply breaks down, consistently surpassing previous highs. This pattern intensifies the speculative nature of this range.

This range aligns with earlier support levels this month and the 200/233-day SMA, which was breached just a month ago for the first time since August of last year. A bounce from here could be seen as a confirmation of the initial breakthrough. A breach below it would not only signal bearish sentiment but also trigger a breakout of a potential head and shoulders pattern's neckline.

Overall, WTI crude oil has retreated from its August highs and found support around the monthly pivot point and the 38.2% Fibonacci level. It remains uncertain if the "corrective low" has been seen yet, but as supply concerns brew and the U.S. dollar index lingers around May highs, we believe further price retracement could enhance the risk-reward ratio and bearish bias remains while the price is still above last week's lows.

WTI: Meaningless Rally Is for a Correction Only_1

Technical Analysis

WTI crude oil has been steadily declining since reaching a 9-month high of $84.32 on August 10th. Despite the recent completion of a golden cross between the 50-day and 200-day SMAs, bearish pressure has shown no signs of easing.

The current momentum indicators suggest a prevailing bearish force. Specifically, the MACD is softening below the zero line but remains positive, while the Relative Strength Index (RSI) has fallen below the neutral zone of 50.

Should the bears continue to push prices lower, the July resistance level at $77.18 could potentially serve as initial support. Breaking below this level, prices might decline toward the range of $73.73-$75.82. Any further descent could find potential stabilization within this range, failing which could intensify resistance against future upward movement.

Conversely, bullish action could drive prices above the recent stubborn barrier at $80.36. After breaching this area, the oil price could potentially challenge the recent selling initiation point at the April peak of $83.32.

On the whole, WTI crude oil has been undergoing a downward correction following its rejection from a nine-month high during the summer travel peak. However, for the technical landscape to shift positively, prices need to breach the downward-sloping trendline connecting lower highs since August 2022, seeking downward momentum for a rebound. In terms of trading strategy, a preference for going short at highs is recommended.

Trading Recommendations

Trading Direction: Short

Entry Price: 80.00

Target Price: 74.30

Stop Loss: 81.80

Valid Until: 2023-09-11 23:55:00

Support: 77.18, 76.38, 75.52

Resistance: 80.36, 81.07, 82.50

Risk Warnings and Disclaimers

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Peterson

Commodity

Summary:

Buy lows and sell highs from 78 to 80.5.

SELL WTI

EXP

EXPIRED

80.500

Entry Price

79.000

81.000

69.947 +0.158 +0.23%

Pips

EXPIRED

79.000

81.333

Exit Price

80.500

Entry Price

81.000

Fundamentals

During Monday's (August 28th) Asian session, WTI crude oil narrowly oscillated, and it is currently trading at $79.5/bbl. Yesterday, the U.S. dollar strengthened sharply, but the U.S. and Japan's economic data weakened. Without getting affected, oil prices rebounded sharply because of the decline in diesel fuel inventories in Europe and the rise in the possibility of further OPEC+ production cuts. Now, although the lowering in inventory and the production cuts will increase the oil prices, the macro-level performance is still negative, and risk-aversion sentiment remains strong. Besides, the Fed will probably raise interest rates, which will be bearish on oil prices shortly.

Stock: As of the week of August 25th, U.S. crude oil inventories plummeted by 6.1 million barrels. As the refining volume hit a new high since 2020, gasoline and distillate inventories increased by 1.467 million barrels and 945,000 barrels, respectively. Data released by Insights Global in the Netherlands illustrated that diesel stocks at independent warehouses in the Amsterdam-Rotterdam-Antwerp (ARA) refining and storage hub fell 3% in the latest week.

Data: The preliminary U.S. Composite PMI index fell to 50.4 in August, down 1.6 compared with the final value of 52 in July, the biggest drop since November 2022. Moreover, Japan's Tokyo CPI index for August was weaker than expected, increasing by 2.9% YoY, and declining by 0.3% MoM. The UK's preliminary Markit Manufacturing PMI for August came in at 42.5, down 2.8 from July's final reading.

Today's focus: API inventory data.

Technical Analysis

Daily chart: WTI opened at 80 today. It once retraced to 77.8 last week and formed a double-bottom pattern, confirming that the short-term retracement has been completed. Last Friday, WTI appreciated to 80.4 (the upper area of the channel shown below), growing for 2 consecutive days. Today, WTI may extend the trend to rise further, but there will be strong resistance as WTI reaches the upper area of the channel. Thus, it will be difficult to take profits by chasing the upward trend. To go long, investors should wait for the WTI to drop below the 5-day SMA (79.3) and gain support. In addition, the resistance above will be at the 20-day SMA (81). If WTI breaks above the resistance and rises slowly, this round of retracement will end, and WTI may further surge to 84.5. Now, the support and resistance in the channel are still valid. Aggressive investors could go short in the near term at the upper area (80.5).

Trading recommendations: Buy lows and sell highs. If WTI rebounds to 80.5 today, investors could go short in the near term, and set the stop-loss at 81. To take profits, the first target will be 79.2, where investors could move the stop-loss to breakeven, and set the second target at 77.5. Instead, investors could go long shortly if WTI plummets to 78.5, setting the stop-loss and 78 and taking profits at 80.5. WTI: Strong USD Won't Bother Oil Prices _1

WTI: Strong USD Won't Bother Oil Prices _1

Trading Recommendations

Trading direction: Short

Entry price: 80.500

Target price: 79.000

Stop loss: 81.000

Support: 79.500/77.500

Resistance: 80.500/81.500

Risk Warnings and Disclaimers

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Warren Takunda

Forex

Traders' Opinions

Summary:

The EUR/USD currency pair faced a challenging week, ending down 0.68% as it fluctuated between highs and lows. Central bank guidance, upcoming inflation figures, economic divergence, and strong US economic indicators all played a significant role in shaping the currency pair's performance. This article delves into these key factors and provides insights into the near and long-term outlook for the EUR/USD.

SELL EURUSD

Close Time

CLOSED

1.08200

Entry Price

1.06000

1.09200

1.04116 +0.00206 +0.20%

100.0

Pips

Loss

1.06000

1.09201

Exit Price

1.08200

Entry Price

1.09200

Central Bank Guidance and Its Impact

Central bank guidance has been a crucial driver of the EUR/USD's recent performance. ECB President Lagarde's commitment to maintaining a restrictive policy for as long as necessary has weighed on the euro. The market will closely monitor her comments for any shifts in stance.

Inflation Figures and ECB Outlook

Inflation figures for Germany and the Eurozone, set for release on Wednesday and Thursday, could significantly influence the European Central Bank's (ECB) interest rate outlook. Softer inflation numbers may raise questions about the ECB's commitment to its current policy, potentially impacting the euro's value.

Economic Divergence Between the US and Eurozone

One of the central themes impacting the EUR/USD is the economic divergence between the US and the Eurozone. As the US economy displays strength, speculation grows about whether the Federal Reserve or the ECB will be the first to raise interest rates. This divergence in monetary policy direction will be a key factor to watch in the coming weeks.

US Economic Indicators

Strong US economic indicators have contributed to recent losses in the EUR/USD. In this context, upcoming US economic data releases will be closely watched. Among them, the Core PCE Price Index, personal spending, and the US Jobs Report stand out as crucial indicators that could sway the currency pair.

EUR/USD Price Action and Technical Analysis

On the Daily Chart, the EUR/USD pair was observed trading above the crucial support band of 1.0750 to 1.0700. The week began on a bullish note, propelling the EUR/USD above the 200-day Exponential Moving Average (EMA). However, it's important to note that the pair still lingers below the 50-day EMA, which sends mixed signals. While the short-term outlook appears bearish, the longer-term perspective leans toward a more bullish sentiment. EUR/USD: Can Strong US Indicators Push the EUR/USD Lower?_1

EUR/USD: Can Strong US Indicators Push the EUR/USD Lower?_1

Analyzing the 14-Daily Relative Strength Index (RSI), we note a reading of 35.27, indicative of a prevailing bearish sentiment. Both the RSI and the position relative to the 50-day EMA suggest a potential decline that could lead to the retesting of the upper boundary of the support band at 1.0750 to 1.0700. Nonetheless, should the EUR/USD manage to maintain its position above the 200-day EMA, it could fuel a bullish rally, with a target set on the resistance band between 1.0850 and 1.0900.

EUR/USD: Can Strong US Indicators Push the EUR/USD Lower?_2

Shifting our focus to the 4-Hourly Chart, we find that the EUR/USD continues to trade below the resistance band spanning from 1.0850 to 1.0900. Despite an initially bullish start to the day, the pair remains situated beneath both the 50-day and 200-day EMAs, indicating bearish sentiments in both the short and long terms.

Examining the 14-4H RSI, we observe a reading of 42.69, underlining a bearish sentiment with selling pressure outweighing buying pressure. Importantly, both the RSI and the EMAs are hinting at a potential downward movement, which could bring the EUR/USD into the upper range of the support band between 1.0750 and 1.0700. Nevertheless, if the EUR/USD manages to surge beyond the lower boundary of the 1.0850 to 1.0900 resistance band, it may provide the bulls with an opportunity to challenge the 50-day EMA.

TRADE RECOMMENDATION

SELL EURUSD

ENTRY PRICE : 1.0820

STOP LOSS : 1.0920

TAKE PROFIT : 1.0600

Risk Warnings and Disclaimers

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Peterson

Commodity

Summary:

Today's oscillation will start from 1901 to 1923, and it is better to buy lows and sell highs.

BUY XAUUSD

EXP

EXPIRED

1909.00

Entry Price

1923.00

1904.00

2638.52 +21.81 +0.83%

Pips

EXPIRED

1904.00

1944.60

Exit Price

1909.00

Entry Price

1923.00

Fundamentals

In Monday's (August 28th) Asian session, spot gold narrowly oscillated, and it is currently trading at 1915. Last Friday, the gold market was quite volatile, especially after Fed Chairman Powell's speech at the Jackson Hole Economic Symposium. Gold once declined to 1904 due to the hawkish attitude of Powell. But finally, it rebounded to 1915, closing the daily chart with a long-lower-shadow doji star. Besides, the rebound from 1904 to 1915 reflected that gold broke above the resistance of 1900, because Powell's speech completely weakened the Market expectations for hawks, giving clear support to gold prices, which could lay the foundation for future appreciation. Currently, if there is a slight retracement again, it is recommended to go long with small positions and focus on the resistance near 1923 and 1935 above. In addition, this week's employment data is critical. If it proves that the U.S. economy is resilient, it may support further rate hikes.

News: Fed Chairman Powell delivered a speech, recognizing the progress in curbing inflation. However, he also pointed out that inflation "is still too high", and said that if appropriate, the Fed is ready to further raise interest rates. Moreover, he explained that the Fed intends to maintain restrictive interest rates until it is confident that inflation plunges toward the target level. Powell concluded that future Fed meetings will assess progress based on the overall data, as well as the changing outlook and risks.

Focus for today: ADP employment data, initial jobless claims, and Nonfarm Payrolls data.

Technical Analysis

Daily chart: Gold oscillated significantly last Friday by first plunging to 1904 and then rebounding to 1915, closing the daily chart with a long-lower-shadow doji star. This pattern confirms a firm bottom, and gold is currently above the 5-day, 10-day, and 20-day SMAs. Furthermore, MACD forms a golden cross at the bottom and expands, maintaining a bullish signal. For this week, gold is expected to ascend as well. Nonetheless, there will be significant data this week, and if the data is bearish, gold will test the previous low. Under the present great oscillations, there is insufficient momentum for gold to appreciate, and the data this week could be the catalyst. For the above, investors should focus on 1923, the triple-top point in the short term. If gold crosses above it, considering the support from data and the depreciation in the USD, gold will surge easily to 1935. In the near term, a one-way growth will not likely happen, and gold will just climb up slowly with oscillations. Thus, it is better to go long after a retracement.

Trading recommendations: Buy lows and sell highs. If gold retraces to 1909 today, investors could go long with small positions in the near term, and set the stop-loss at 1904. To take profits, the first target will be 1923, where investors should move the stop-loss to breakeven, and fix the second target at 1935. Instead, if gold rises to 1935, investors could go short with small positions, and set the stop-loss at 1940. To take profits, the first target will be 1923, where investors should move the stop-loss to breakeven, and set the second target at 1914. XAUUSD: Will Gold Get Strong in the Significant Data Week? _1

XAUUSD: Will Gold Get Strong in the Significant Data Week? _1

Trading Recommendations

Trading direction: Long

Entry price: 1909

Target price: 1923

Stop loss: 1904

Support: 1912.000/1900.000

Resistance: 1923.000/1935.000

Risk Warnings and Disclaimers

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US-Canada Bond Spread Widens as US Economy Roars

The US-Canada 10-Year Bond Spread Widens

Implications for USDCAD

TRADE RECOMMENDATION

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EUR/USD: Can Strong US Indicators Push the EUR/USD Lower?

TRADE RECOMMENDATION

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Risk Disclosure